FocusEurope BD sellers target record high Q4

26 September 2008 16:16  [Source: ICIS news]

By Nel Weddle

LONDON (ICIS news)--European butadiene (BD) contract sellers were targeting sizeable increases for fourth-quarter contracts on expectations that the supply and demand balance would remain tight and the strong disconnect with global pricing, market sources said on Friday.

Prices of €1,500-1,540/tonne ($2,206-2,265/tonne) were being mooted by two contract sellers, which would mean increases of €240-280/tonne from the third-quarter value of €1,260/tonne FD (free delivered) NWE (northwest Europe), itself a record high.

“Even at €1,540/tonne, it’s cheap compared with elsewhere,” a major seller said, and this was echoed by another who said: “They [the buyers] are still benefiting from being based here, as they are still getting the cheapest BD in the world.”

Sellers said that supply, which had been plagued by numerous planned and unplanned production issues for most of the year, was expected to remain tight.

This was because cracker operating rates had been cut back in response to ethylene oversupply, the result of which was the reduction in crude C4 feedstock output.

Others countered that supply was improving as evidenced by the lifting of two long-running BD forces majeures by INEOS and Dow this week.  

This, and the fact that crude and naphtha had slipped considerably through the third quarter, as highlighted by the reductions in ethylene and propylene fourth-quarter contract settlements, should be taken into account.  

Demand was also strong, said major producers.

“[We’ve] got customers asking for extra product in Europe, so clearly demand is there,” one seller said, adding that it was shipping out everything that it produced. “We have no chance to build stock.”

However, sources said that it was difficult to determine what proportion of European demand was in fact global consumers covering their US systems because of the vast arbitrage window.

“Our rationale is [also] that we have to close the gap [between Europe and the US],” a producer said, which would enable the European market to rebalance. The current arbitrage window was far too wide, it said.

In the US, the September contract was settled at 118 US cts/lb ($2,601/tonne) FOB (free on  board) US Gulf. No October nominations had been divulged so far, due to the disruptions caused by Hurricane Ike.

Asian spot BD assessed at $2,870-3,000/tonne delivered, down $30-100/tonne, according to global chemical market intelligence service ICIS pricing.

Some market sources agreed that an increase was likely but that they did not see the rationale behind such significant targets.

“I can’t see the rationale, [I] don’t see a structural shortage,” one seller said. "The gains are not driven by the European situation."

Added a consumer: “In my view it’s not justifiable at all”. The only reason is the difference to US and Asia, and Asian prices are already coming down.

“Cracker margins are good… the peak is over."

Another consumer said that it expected discussions to be difficult, and while it had heard and understood producers’ talk regarding spot margins, it “could not justify the small 10% of high spot sales settling the price for 90% of the market.”

($1 = €0.68)

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By: Nel Weddle
+44 20 8652 3214

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