Europe spot BD below contract price for first time in 15 months

09 September 2010 14:17  [Source: ICIS news]

LONDON (ICIS)--Spot butadiene (BD) prices in Europe have fallen below the contract price for the first time since June 2009 as a result of a combination of ample supply, reduced domestic consumption and a more competitive export market, sources said on Thursday.

Spot values had briefly flirted with contract levels over the Christmas and New Year period, peaking in the mid-€1,700s/tonne ($2,152/tonne) FD (free delivered) NWE (northwest Europe) in April and May of this year, because of production problems and strong domestic and export demand.

Spot prices had been at their lowest levels – €200/tonne – in the first and second quarters of 2009 because of the global economic crisis.

Current spot prices have been assessed at around €1,400/tonne FD NWE on the domestic market, compared with the prevailing third-quarter contract price of €1,480/tonne FD NWE.

“I am being offered BD at numbers below contract for the first time in a long time,” said a net consumer.

Last week, a deal for 150-200 tonnes was confirmed at €1,380/tonne FD NWE, but one or two sources said that they felt sure they could now achieve prices “a little over €1,300/tonne”.

A source said: “We are not talking about thousands of tonnes, but 500 tonnes could be available at around €1,320-1,340/tonne.”

BD supply in Europe was balanced to long. Crackers ran heavier feed slates than is usual over the summer period, which produced more crude C4 feedstock molecules than was expected.

Added to this were production problems at a couple of major consuming units – at Chalampe, France, and Schkopau, Germany – which meant that domestic demand was reduced.

The export market, which had been key to driving spot numbers ever higher, had waned as weakening prices in Asia and elsewhere displaced European exports to the US Gulf.

Reports now suggested that US production problems have been resolved, with sufficient product in tank following significant imports from Asia and Brazil.

Recent shipping reports showed several cargoes ex-NWE heading to the US Gulf, but these had been booked at the height of the US supply problems.

One trader said that now NWE netbacks had to be “very, very low” in order to conclude fresh business with the US.

Last week, sources indicated that there were some buying ideas around 80 cents/lb delivered USG (US Gulf), which equated either to the mid-to-high-€1,100s/tonne or low-€1,200s/tonne FOB (free on board) NWE, depending on freight rates.

However, recent offers had been reported in the US at 85cents/lb DEL (delivered), giving an approximate low-€1,300s/tonne FOB netback.

“That [mid-€1,100s/tonne FOB] would probably work, if you had physical space for it,” said the trader.

The trader added: “There is no ullage. [I] hear that the [ship] is sitting in USG waiting to discharge…no where to put it.”

European producers had so far managed to steer clear of the pressure to sell at the very low levels needed to accommodate the falling arbitrage.

But some sources said that until European demand levels fully resumed, the need to rebalance systems would grow more urgent as companies chose to take advantage of buoyant cracker margins and run as hard as possible.

However, some sources said the weakness was only a short-term setback, as derivative production problems would soon be resolved and maintenance turnarounds at a handful of crackers across Europe would continue to limit crude C4 availability.

($1 = €0.79)

For more on butadiene visit ICIS chemical intelligence
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By: Nel Weddle
+44 20 8652 3214

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