Intermediates: European BDO under pressure

02 August 2011 10:03  [Source: ICB]

Correction: In the article headlined "Intermediates: European BDO under pressure," please read, "Ludwigshafen, Germany," instead of "Leverkusen, Germany." A corrected story follows.

Force majeure on butanediol from BASF's Ludwigshafen facility could extend into September

Strong demand and production problems have pushed price ­increases of €180-240/tonne ($261-348/tonne) into third-quarter European butanediol (BDO) contracts.

Most increments were €200/tonne, according to ICIS, which assessed third-quarter contracts at €2,250-2,300/tonne FD (free delivered) NWE (Northwest ­Europe) on July 19.

European BDO, quiet for the last half of 2010, has accelerated through 2011, with successive increases of growing magnitude. (See graph.)

Second-quarter contracts, assessed on April 19 at €2,050-2,100/tonne FD NWE, incorporated a slightly smaller increase of €175/tonne. Producers attributed the result to price volatility in raw materials and energy costs, as well as demand growth of 5-6% over 2010 levels.

"We are seeing good demand from all downstream sectors," one producer said at the time.

Producers of polybutylene terephthalate (PBT) - an engineering thermoplastic used as an insulator in the electrical and electronics industries - polyurethane (PU) and fibers were all "running at high utilization," he added. Buyers, on the other hand, insisted that they had been able to obtain as much BDO as they needed, although spot material had been difficult to secure. "The sellers are being opportunistic," a source claimed. "There is no rationale behind this increase."

A TURN FOR THE WORSE
However, if buyers thought relief might come in the next contract, their hopes were dashed on May 31, when Europe's largest producer, BASF, declared force majeure on BDO from its Ludwigshafen, Germany, production facility. The 190,000 tonne/year BDO plant at Ludwigshafen, which employs the venerable Reppe process, normally takes its feedstock from an acetylene plant at the same site, but a fire on May 30 took the unit out of commission, pulling the plug on BDO operations.

BASF immediately declared force majeure and put customers on a 33% allocation.

The company has since been able to continue BDO production at Ludwigshafen, but at minimal levels. The allocation has been raised to just 45%, and the possibility has emerged that the situation might persist beyond August. "We can run parts of the acetylene plant, which allows BDO production to operate at low rates," a company source told ICIS.

"We will keep the force majeure because there is no change in the general situation, and it might have to extend into September because of damage to the acetylene plant."

Despite the undeniably tight market, buyers strongly opposed the size of the increment, arguing that the reduced cost of feedstocks propylene and methanol and the lower volume requirements of summer should have moderated the increases. August demand is expected to fall by 10-40%, as some plants will shut down over the summer period.

"Our demand is sliding down, probably due to high costs," said a buyer who had not yet settled. "I'm still in negotiation about the increase and would like to avoid it. Unfortunately, due to the shortage of material it will be difficult."

Another buyer said: "Demand in China is stabilizing and it's very difficult for downstream sectors to take on the price increases. We are trying to limit our demand, but we need the product. Even those who usually give some sort of discount have not this quarter, and we have settled most of our contracts up by €200/tonne."

Sources in the market generally agreed that July offtake had been healthy, August is likely to be quiet, and demand would rebound in September, as usual.

Supply would remain tight for at least the next few months, and perhaps for the next two years, according to some sources.

Major European producers of BDO include BASF, Lyondell Chemie Nederland and ISP Marl.

WEAK DEMAND IN ASIA
In North America, third-quarter BDO contracts settled on July 12, up 12 cents/lb ($265/tonne, €188/tonne) to 150-154 cents/lb DEL (delivered). Sources in the market cited tight global supply and strong demand.

Major North American producers of BDO include BASF, Invista and LyondellBasell.

In Asia, prices have generally risen over the past year, but spot prices in China have been flat since May, amid tight supply and soft demand.

Buyers said it would be difficult to accept further price hikes given poor the conditions downstream in the PU, tetrahydrofuran (THF), polytetramethylene ether glycol and gamma-butyrolactone sectors.Regional sellers, on the other hand, pointed to their lean inventories and said there were no concrete reasons for them to reduce their prices. Prices in China are too low, they added - particularly in comparison to other Asian markets such as Taiwan and Korea, as well as Western markets.

In light of the weak demand, and also to fulfill government mandates aimed at reducing power consumption over the summer, a growing number of Chinese BDO facilities have been scheduling shutdowns in July and early August. This has made locating local cargoes increasingly challenging, said buyers.

Major BDO producers in Asia include BASF, Dairen Chemical, Henan Kaixiang Chemical and Mitsubishi Chemical Corp.

Includes reporting by Helena Strathearn in London, Cheong Su Yeen in Singapore and Brian Balboa in Houston


By: Clay Boswell
+1 713 525 2653



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