Europe BD holds steady as downward price pressure looms

04 August 2010 17:11  [Source: ICIS news]

LONDON (ICIS)--The European butadiene (BD) market has managed to maintain firm pricing as US and Asian markets soften, because of support from healthy domestic demand amid some production constraints, market sources said on Wednesday.

Butadiene prices in Asia, which have been softening since early May as a result of ample supply and weak demand, are likely to fall below $1,700/tonne (€1,292/tonne) CFR (cost & freight) as consumers press for lower numbers.

Demand from the US, which had supported the European market through the first half of this year, was now waning because the region’s local supply had improved and European volumes were now having to compete with cargoes from South Korea and Brazil.

“The US market is more balanced. It's difficult to find homes for BD in the US. A lot of volume is heading that way,” said a trader.

Frieght rates out of Europe to the US Gulf were pegged at $180-200/tonne. With spot prices in the US being talked around the August contract value of 94 cents/lb ($2,072/tonne) DEL (delivered), this meant that European netbacks would at least be equivalent to around €1,400-1,450/tonne FOB (free on board) NWE (northwest Europe).

“[A price of] $2,100/tonne is not workable in my view,” said the trader, referring to the last openly reported deal, which was done a couple of weeks ago.

Other traders suggested that FOB numbers would have to be well below €1,400/tonne if they were to secure a home with US consumers.

“It’s difficult to move BD with the euro at 1.32 as well,” said another trader, referring to the weakness of the US dollar, which would not favour exports from Europe.

However, European producers were not yet under pressure to sell volume to the export market, even though some sources said that it was just a matter of time before European prices headed in the same downward direction.

Recent high temperatures across Europe reduced output at a number of sites. But with the heatwave having now passed, there was still the need to replenish stock levels.

Additionally, there were reports of some cracker problems, which were limiting the availability of the feedstock crude C4 for butadiene extraction units.

While there had been some slight erosion in demand, this was attributed to seasonal factors and was therefore viewed as temporary.

“The upward momentum on price has run out of steam,” said a major producer, “but the underlying fundamentals are still strong. [I] don’t see it bringing a huge collapse in [European] prices.”

“[A price of] €1,400/tonne [FOB] is a bit optimistic. We are still selling at €1,600/tonne [on the domestic market],” added the producer.

The European third-quarter butadiene contract settled up by €205/tonne from the previous quarter at €1,480/tonne FD (free delivered) NWE.

The August monthly contract price was recently agreed at €1,460/tonne FD, up by €60/tonne from July.

($1 = €0.76)

For more on butadiene visit ICIS chemical intelligence
Read Paul Hodges’ Chemicals and the Economy blog
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By: Nel Weddle
+44 20 8652 3214

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