INSIGHT: Feedstocks drive butadiene up but little downstream support

22 July 2009 16:16  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--“The Philippine plant is not competitive and Goodyear chose to shut it down as a long-term strategic decision. It also reflects the current weak global market conditions, as we do not expect the US auto market to recover until the second half of next year, at the earliest,” an industry source told ICIS news in Singapore last week.

In a report of reactions to rising butadiene prices, the comment highlighted the fact that even suppliers in Asia have not been immune to the global automobile downturn. Makers of butadiene, the raw material for synthetic rubber, have been hit hard.

Tyre makers in Asia had raised concerns over soaring butadiene prices, which they said might hamper a recovery in demand and have an impact on their fourth-quarter contract negotiations with styrene butadiene rubber (SBR) producers.

Butadiene spot prices had hit $1,000-1,050/tonne (€700-735/tonne) CFR (cost and freight) northeast (NE) Asia, up $200/tonne from a month earlier.

Steep rises in regional butadiene prices contributed to the much higher ICIS Petrochemical Index in July compared with June. Prices were 67% higher in the US, 57% higher in Europe and up 27% in Asia for the month. They jumped as plant closures globally tightened supply and naphtha became dearer.

The price increases, however, were hitting the market at a difficult time. Demand growth for butadiene has been entirely focused in Asia Pacific where significant new derivatives capacity has built up, particularly in China and South Korea, consultants Chem System say in a just published report.

Most new crackers in China, for instance, have butadiene extraction capability. Some are integrated with downstream synthetic rubber units.

Butadiene supply globally was extremely tight for the first three quarters of last year as higher naphtha costs drove ethylene makers to switch to cracking gas feedstocks and limiting supply. The market tightness, however, disappeared as demand collapsed in quarter four.

The butadiene story is one of the shift of markets to Asia and to regions like central Europe and away from the US, western Europe and Japan. The US has a strong styrene butadiene rubber (SBR) export position because of its SBR production capability and slowed domestic demand. The market is short, however, of mixed C4s and is structurally weak.

The vehicle tyre replacement market is huge, and most butadiene goes into SBR and butadiene rubber (BR), but vehicle owners are driving less. The lack of demand from the auto makers and weakened demand for replacement tyres from vehicle owners makes a deadly combination.

Butadiene is also used to make the engineering plastic ABS (acrylonitrile butadiene styrene), but that market has been hit globally by weakened automobile demand and lower demand from the electronics industries.

Changes in the end-use markets are driving change upstream in butadiene demand growth patterns.

The North American market has weakened as downstream demand in the auto, tyre replacement and electronics industries has moved to Asia. Producers in western Europe and Japan are having to adapt to the trend.

Demand has risen in central Europe, as synthetic rubber plants have migrated to cheaper production areas. Chem Systems forecasts that Asia Pacific demand will grow to 53% of the global total in 2015 from 45% in 2008.

Rapid growth is forecast for the Middle East as new butadiene derivatives production capacities are added to exploit a growing C4 product slate from new heavy feed steam crackers.

The changing shape of the global market is driven not simply by rubber demand but also demand for high impact polystyrene (HIPS) – butadiene is an impact modifier for HIPS – the nylon intermediate HDMA (hexamethylene diamine) and ABS.

China overtook the US in 2007 as the largest consumer of butadiene rubber. ABS may be under pressure from inter-polymer competition but Chem Systems believes it will be one of the key drivers for styrene market growth as the global economy recovers. Asia Pacific will remain the largest consuming region.

For more on butadiene visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Nigel Davis
+44 20 8652 3214

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