Looser US BD supply may trigger Nov price drop

09 October 2008 19:32  [Source: ICIS news]

HOUSTON (ICIS news)--Lengthening US butadiene (BD) supply could trigger a price drop in November, snapping a 12-month surge during which contract prices more than doubled, market sources said on Thursday.

US BD prices for October settled 4 cents/lb higher at a record $1.22/cents/lb ($2,690/tonne, €1,964/tonne). That compares with 55 cents/lb in October 2007, according to global chemical market intelligence service ICIS pricing.

BD began to climb in November 2007 amid firm demand and limited supply due chiefly to feedstocks constraints.

Market sources said that scenario shifted after Hurricane Ike hit the Texas Gulf coast, shutting down more than 20% of BD consumption capacity in the region.

“Some BD consumers will not resume normal production until mid-November,” one source said.

On the supply side, buyers said US BD output was likely to increase in the next three months.

At least two producers were expected to start running at or near full capacity, following months of low operating rates and allocations, sources said.

Also tilting the scale towards a reduction in BD contracts were a sharp drop in feedstock costs and signs that BD consumption began to taper off, a styrene butadiene rubber (SBR) producer said.

SBR is mainly used in the production of automobile tyres and accounts for about one third of global BD consumption.

The producer quoted data from the US Rubber Manufacturers Association (RMA), which showed a first-half drop of 3.3%, year on year, in sales of tyre for passenger, light truck and trucks.

The RMA predicts replacement passenger tyre sales will drop by nearly 1% in 2008, while light truck tyre shipments will fall by 7% compared with 2007.

“The sagging US economy is increasingly impacting consumer spending, forcing people to delay the purchase or replacement of tyres,” the SBR producer said.

“We expect to see a price drop for BD in November or at least a rollover in a worst-case scenario,” the source said.

Other buyers were more emphatic about the outlook for November, arguing that contracts should already have dropped in October, when producers implemented a 4-cent/lb increase.

“That increase in October was unacceptable and indecent,” one source said.

Another participant said a drop in November was widely expected in the market, as BD prices in Asia were dropping and BD contracts in Europe were $900/tonne cheaper than in the US.

US BD contracts usually settle at the beginning of the month.

BD producers include ExxonMobil, Equistar, Shell and Texas Petrochemical. Buyers include Invista, Goodyear and Firestone.

($1 = €0.73)

For more on butadiene visit ICIS chemical intelligence

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By: William Lemos
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