28 December 2010 13:30 [Source: ICIS news]
By Nel Weddle
LONDON (ICIS)--The European butadiene (BD) supply-and-demand balance will depend on cracker economics but the underlying tendency is likely to be tight, driven by growth in domestic consumption and expectations that export demand will remain strong.
Market sources said that BD supply in 2010 had been better than expected, largely because economics had dictated a departure from the traditional light-feed liquefied petroleum gas (LPG) cracking during the summer months, which produces less crude C4 butadiene feedstock.
“Feedstock was exceptional in 2010, we were very lucky, we had more C4s than expected,” a BD producer said.
Additionally, European crackers had run at higher rates than had been anticipated, particularly during the second half of the year, as increased ethylene and ethylene derivative capacity in the ?xml:namespace>
However, not everyone was convinced that supply in 2010 was just an exception, with some suggesting that a similar situation might be seen in 2011.
“Everyone says so, but I wonder whether LPG really gets back to levels pre-2010,” a major consumer said.
“LPG availability won’t be as in the past,” the consumer added.
The consumer questioned whether there was enough propane and butane to allow for a summer dip in C4s output. LPG supply had tightened and prices firmed because it was being used to feed the new
The high values seen in co-product [propylene, C4s, butadiene, raffinates, benzene] markets were also a strong incentive for European cracker operators to crack naphtha rather than its lighter alternative.
“Why did ethylene cracker operators do more naphtha this year instead of LPG?… the returned value from co-products is a very strong reason,” the consumer said.
The better-than-expected output at European crackers in 2010 had coincided with cooling export demand on a couple of occasions during the year. European BD prices softened and it was clear that producers were beginning to get a little concerned about how they would evacuate unwanted tonnes from their systems.
However, this was being seen largely as an anomaly because the impact of increased Middle East capacity was inevitable, sources said, and would lead to reduced cracker operations in
Additionally, there was scheduled cracker maintenance starting in March, and one major BD producer would also be down for a planned turnaround in the spring.
Domestic demand would likely get off to a very strong start. Underlying demand was strong, but cold weather across
“Business sentiment is positive overall. Q1 [will be] stronger, a sign of things to come,” said the producer.
The export market would continue to play a very large part in the European supply-and-demand balance. Over the past couple of years, domestic consumers have become increasingly concerned that the structurally short and often firmer markets in Asia and the
In an attempt to address this and hopefully avoid the price pressure the wide-open arbitrage has had on domestic contract and spot levels, the industry decided to adopt a monthly contract pricing mechanism from January 2011 after years of debate and much resistance from major European consumers. It will replace the quarterly contract price (QCP).
“As far as I am concerned the QCP [is] dead and gone. We need to maintain as many C4 molecules in
On Tuesday 21 December, the first industry-wide monthly contract price (MCP) settlement was agreed at €1,340/tonne ($1,769/tonne) FD (free delivered) NWE (northwest Europe). This marked an increase of €60/tonne and €15/tonne from the prevailing December MCP and fourth-quarter contract prices, respectively.
This number was generally seen as a fair compromise by all concerned.
For many sources, the only thing they could be sure of in 2011 was a volatile market.
“There are so many factors influencing supply and demand and pricing, it was prudent to move to MCP,” the second major consumer added.
($1 = €0.76)
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