30 November 2011 12:42 [Source: ICIS news]
LONDON (ICIS)--The European butadiene (BD) contract price (CP) for December has been confirmed down by €200/tonne from November, at €1,650/tonne ($2,200/tonne), because of ongoing weak derivative demand, market sources said on Wednesday.
A decrease had been widely expected, because spot numbers have remained considerably below contract values. Lengthy supplies meant that European producers were forced to entertain much lower numbers on the US and Asian markets up until very recently.
The downward pressure has been mitigated to some extent by the reductions in ethylene-driven cracker operating rates and the spot BD market appeared to have stabilised, but some sources remained concerned that any recovery in European derivative demand would be delayed because US and Asian derivatives were better placed from a competitive point of view.
Some sources were already reporting cheaper imports entering Europe, when usually it would be the other way around. Firming prices in Asia over the past two weeks could put a stop to this, but sources were uncertain whether this uptrend will be sustained.
Two producers confirmed 29 November's €1,650/tonne agreement, while another said it would not follow, but neither would it protest. A fourth producer said it was disappointed as it had been looking for a higher number, but would most likely follow.
From the consuming side, two major consumers confirmed, but another major consumer was conspicuous by its absence. It said its “position is not reflected in the settlement”.
A fourth major consumer said that “the decline is in the right direction, but not enough”.
It added that the market was very long as it was still being confronted by ongoing offers from European producers for December and January spot material at as low as CP minus 17%. It said the discussions had been very frustrating.
One source said there were two main drivers in the discussions: “Parity with the US, and keeping competition from Asia out of the market” – the latter particularly an issue for the downstream synthetic rubber business.
Another source said cracker margins were such that they “could not afford such a drop” and that they were surprised other producers were able to do so.
A third source commented that the BD market should not subsidise the polyethylene (PE) industry and that it was wrong that cracker margins should rely so heavily on the contribution from C4s, rather than taking BD supply and demand fundamentals more into account.
However, for the most part, non-contract industry observers were not in any way surprised by the outcome. Most had been anticipating a reduction within a €100–200/tonne range and were instead rather more surprised by the length of the discussion process.
($1 = €0.75)
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