INSIGHT: Feedstock choice and operating rates will keep butadiene tight

08 March 2010 16:27  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Reliability of supply has become the most important consideration for butadiene consumers.

The cost driven move to lighter cracker feeds in the US and reduced cracker operating rates in Europe have tightened supply. Consumers want the molecules and some are prepared to pay the price.

But the economics have not shifted sufficiently to encourage olefins makers to invest in additional C4s extraction. On-purpose butadiene production based on butane dehydrogenation does not appear to be an economic alternative.

There would be no case of the “tail wagging the dog”, delegates at the 5^th ICIS World Olefins Conference in Amsterdam were told last week. Butadiene has been and will continue to be a by-product of olefins production. Cracker operators could allow one or two furnaces to run on heavier feed but that appears to be as far as most are prepared to go.

The world has changed in a relatively short period. Some of Europe’s crackers and units in Northeast Asia were built at a time when butadiene markets were long. Plants were designed to hydrogenate crude C4s and feed them back to the cracker. These producers now do not have the infrastructure, let alone the capability, to handle these hot gaseous feeds.

Yet the butadiene markets are demanding more. The move towards lower-rolling resistance tyres is driving demand for styrene butadiene rubber (SBR). Other uses in SB latex production, in engineering plastics, nitrile rubbers and elsewhere seem also to be on the rise.

The supply/demand situation is most acute in Asia and in North America where consumers are prepared currently to pay high spot prices for material. Prices are also expected to rise further in coming months.

ICIS reported on Monday that tightness in the US market had pushed prices higher and was sucking in imports from Asia.

Some in the European market argue for a shift away from quarterly to monthly pricing but customers are resistant. A more responsive pricing mechanism could be a driver for more extraction capacity.

The consensus view at the conference, however, was that butadiene supply would remain short and that European customers, which had enjoyed the lowest global prices, would eventually have to pay more competitive rates to keep that supply in Europe.

“The arbitrage window will have increasing influence on butadiene pricing within Europe and European customers will focus more and more on reliability and security of supply” Artur Losch, business director sales butadiene and gases with Evonik Oxeno said at the conference.

European consumers of butadiene have every right to be concerned. The big tyre makers need to keep their synthetic rubber plants filled. Other consumers continue to hunt around for supplies but find prices moving upwards fast.

It looks as though demand will continue to put pressure on supply in Europe, particularly as marginal tonnes are directed to more lucrative markets. Losch forecast a “tremendous growth of import demand of up to 300,000 tonnes a year in 2014” for North America.

The dynamic markets in Northeast Asia will benefit from increased local supply as new crackers come on-stream but downstream demand will continue to suck in imports.

For more on butadiene visit ICIS company intelligence
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By: Nigel Davis
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