04 November 2011 13:34 [Source: ICIS news]
LONDON (ICIS)--Steam cracker operating rate reductions are starting to affect supplies of butadiene (BD), counteracting weak domestic and export demand and stabilising spot values, market sources said on Friday.
“Due to cracker reductions, the supply of crude C4 [feedstock for butadiene] is under pressure,” a major producer said.
“It is very difficult to find [crude C4] volumes,” a second producer said.
A third producer said: “We have an enquiry that we cannot fulfil because of limited crude C4.”
European producers have been forced to cut cracker operating rates because of the very poor performance of key ethylene and propylene derivatives polyethylene (PE) and polypropylene (PP). Rates are reported around 70-75% on average, although some units are still running closer to 80%, depending largely on location and derivative portfolio.
Additionally, for some crackers it is still more economically viable to use liquefied petroleum gas (LPG) as feedstock which naturally produces less crude C4.
“I have several suppliers telling me that crackers are so low they might not have crude C4 available,” a major consumer said.
However, it added that far from this being a concern, it was actually a good situation because it took the pressure off having to fulfil contract offtake obligations at the same time as selling excess tonnes on the spot market at a loss.
“Demand is so weak, but [I am] hearing that BD suppliers are not that desperate because of the cutbacks,” an industry source said.
It added: “There is not much length in the system. We can buy smaller volumes maybe, but not the bigger lots necessary for exports.”
Currently spot prices are being pegged at around €1,600/tonne ($2,222/tonne) FD (free delivered) NWE (northwest Europe) on the domestic market and at $1,600–1,700/tonne FOB (free on board) NWE on the export market. These from a peak in June-July at €2,700–3,300/tonne and close to $5,000/tonne respectively.
“I am sure that we have reached the bottom line [in spot prices] because of crude C4 availability,” the third producer said.
Although spot is showing signs of stabilising, the consensus was that another decline is likely to be seen in the December monthly contract price (MCP).
“The gap [between spot and contract] is still so huge so there will be a decrease for December,” the major consumer said.
The November MCP settled at €1,850/tonne FD NWE, down €250/tonne from October.
While the general expectation was that demand would recover in January, there are still some concerns that the recovery will take some time, chiefly because European derivatives are not best placed competitively on the global market.
“People are worried. [I] don’t see demand picking up until the end of the first quarter,” the industry source said.
There is “worry about the influence of Asia and cheap rubber imports” the first major producer said, adding “we remain cautious”.
Asian butadiene rubber (BR) prices are down by around $800/tonne from October, and regional BD prices are pegged as low as $1,700/tonne CFR (cost & freight) northeast Asia. Further price declines are viewed as likely.
“It is going to be interesting to see if, [or] how, tight crude C4 is going to turn the BD mood,” a trader said.
($1 = €0.72)
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