FocusPlayers conflicted in Europe Q4 BD talks

03 October 2008 14:47 [Source: ICIS news]

By Nel Weddle

LONDON (ICIS news)--European butadiene (BD) contract discussions have been progressing slowly due to recent uncertainties over supply and demand which has led to widely divergent views, buyers and sellers said on Friday.

Two to three weeks ago, it seemed certain that the only debate would be over how much of an increase over the third-quarter value of €1,260/tonne ($1,750/tonne) FD (free delivered) NWE (northwest Europe), would be seen.

In mid-September, sellers talked of a tight supply and demand balance persisting through the fourth quarter and consumers tended to agree.

Sellers were also targeting high increases because of the significant disconnection between European prices and those in the US and in Asia.

A couple of producers were targeting rises of as much as €240-280/tonne which would take contract prices to €1,500-1,540/tonne.

Other sellers were now not so bullish however, saying they could not see the rationale behind such hikes as they saw European supply and demand being more in balance through the fourth quarter. However, they still saw a three-digit increase on the cards.

Recent news that as much as 40% of US BD consumption could be offline for some time led to a shift in consumers’ expectations regarding the supply balance through the quarter.

Between 20-40% less is being consumed in the US in the aftermath of Hurricane Ike, with normal operations in some areas not expected until at least the end of the month, possibly longer.

The result was that BD shipments to the US were being turned around or diverted elsewhere. This would undoubtedly take the pressure off the cheaper, European market, buyers said.

At least two contract buyers said that they were targeting a rollover, with the main issue being one of demand in the current global economic climate.

In addition, crude and naphtha has continued to slide from the peaks last seen in early July. With a reduced pull from the US, this also meant that supply would stay at home.

“Demand is going down heavily and will be off for the next six months,” said one large consumer.

“Demand is also off in Asia,” the consumer said, adding that it had had the first offer for spot volume in several months.

“The suppliers have created the shortages, through production issues, and the production issues are now over,” buyers said.

They added that producer margins were the best seen yet for 2008 but that demand would now be the primary concern rather than upstream feedstock costs.

Sellers were keen to reiterate while production issues at the BD extraction level had for the most part been resolved, ethylene containment issues had resulted in cracker cutbacks which were limiting the output of crude C4, the feedstock for butadiene.

“Crude C4 will not be available even though buyers think that their demand will be slow, it will still be a tight [BD] market in Europe,” a major producer said.

“I can very well understand their [the buyers] point of view, given naphtha, but I can’t imagine we can’t close the gap with the US pricing,” the producer added.

October contracts in the US were expected to settle up 4cts/lb at $1.22/lb ($2,689/tonne or €1,936/tonne), some $939/tonne higher than the European third quarter price.

“It’s a one-time shot just to get Q4 prices high, because they [the sellers] know it [demand] will be bad. The consequence will be reduced volumes,” said one producer two steps downstream of butadiene.

However another producer said that it had of course discussed demand expectations for the quarter and none of its customers had as yet signalled any reduction in its nominations.

($1 = €0.72)

For more on butadiene please visit ICIS chemical intelligence

To discuss issues facing the chemical industry go to ICIS connect

By: Nel Weddle
+44 20 8652 3214

< previous article(VIDEO - ICIS news Europe Lunchtime Bulletin 30 October 2009)

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly