UpdateUS Dec BD falls by nearly half

02 December 2008 22:43  [Source: ICIS news]

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HOUSTON (ICIS news)--US butadiene (BD) contracts in December were fully settled at 50 cents/lb ($1,102/tonne or €871/tonne), down by 47 cents/lb from November, market sources said on Tuesday.

The sharp drop came after one of the four main US producers last week revised its nomination to minus 47 cents/lb from a previous minus 25 cents/lb.

Two producers confirmed the 47 cent/lb decrease, and two buyers said they had received written confirmation that the remaining two suppliers would match the reduction.

US BD producers had originally proposed reductions of 18 and 25 cents/lb for December amid weaker demand and ample supply.

However, buyers pushed for a bigger decrease, citing a disconnect between US BD contracts and prices in other regions, particularly Asia.

Weak demand has sent Asia BD into a tailspin, with spot prices plunging to four-year lows of $700/tonne (31.75 cents/lb) CFR (cost and freight) NE (northeast) Asia last week, from a peak of about $3,350/tonne CFR NE Asia only four months before, according to global chemical market intelligence service ICIS pricing.

BD spot prices in Europe also dropped sharply, falling to $1,425/tonne FOB (Free on Board) RDAM (Rotterdam) in the week ended 28 November from $2,400/tonne in July.

One US buyer welcomed the drop in December, saying the reduction closed a “big part” of the gap with other markets.

But the source said BD prices may drop further, particularly if prices in Asia were to sink to new lows.

One trader last week suggested that it was “highly possible” for Asia BD to collapse to $500/tonne by year-end should crude oil fall to $40/bbl and naphtha slip to $200/tonne.

In such a scenario, US BD would likely have to drop to the 35-40 cent/lb range to remain competitive, the US buyer said.

US BD contracts usually settle at the beginning of the month. Nominations are put forward at the end of the previous month.

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

($1 = €0.79)

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By: William Lemos
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