BD may fall to $2,000/tonne as demand falters

13 October 2008 05:41  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS news)--Asia butadiene (BD) prices may further weaken to $2,000/tonne by end-December after plummeting about 17% last week amid shrinking demand and rising inventories as the global credit crisis deepens, traders and buyers said.

 

BD prices plunged by $500/tonne to $2,350-2,400/tonne (cost and freight) northeast (NE) Asia week-on-week, tracking falls in crude and naphtha values, which slipped to around $80/bbl and below $600/t CFR Japan, respectively.

 

The cheaper Chinese BD and the slump in the derivative Chinese domestic synthetic rubber market also exerted pressure on BD prices, defeating efforts by producers to hold them close to $3,000/tonne CFR northeast (NE) Asia.

 

Several major cracker operators, including Formosa Petrochemical Corp in Taiwan, Yeochun Naphtha Cracking Centre (YNCC) in South Korea and Mitsubishi Chemicals in Japan, have either shut down plants or cut operating rates by 20% to tighten supply. But demand was too weak to prevent prices from collapsing.

 

“BD is likely to fall to $2,000/tonne by the end of this year. But who knows where the bottom is, given the global financial turmoil,” a trader said.

 

Several styrene butadiene rubber (SBR) and butadiene rubber (BR) producers in China had shut down in recent weeks as demand had not rebounded as expected after the Beijing Olympics in August.

 

This had freed up surplus BD into the export market, with Chinese BD producers dropping prices below $2,400/tonne CFR NE Asia in a bid to attract buyers.

 

But with crude falling more than 45% last week from its peak at $147/bbl in July, and natural rubber values plunging by $1,000/tonne since early September to dip below $2,000/tonne, synthetic rubber prices themselves are under downward pressure and synthetic rubber producers have continued to press for lower BD numbers.

 

In China, domestic BR prices have fallen by yuan (CNY) 2,000/tonne since early October to CNY 18,500-19,000/tonne ex-warehouse as the tyre producers have switched to cheaper natural rubber as a substitute.

 

Natural rubber is a substitute for synthetic rubber and tyre producers had switched to the cheaper natural rubber, further dampening demand for synthetic rubber and inevitably BD.

 

“BD prices can drop to $1,500-1,700/tonne CFR NE Asia, back to the same level as in December last year when crude was $80-90/bbl,” a Chinese synthetic rubber producer said.

 

 ($1=CNY6.84)

 

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By: Helen Yan
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