Russia imports add downward pressure to Europe butanol prices

02 December 2011 13:35  [Source: ICIS news]

LONDON (ICIS)--Butanol imports from Russia are lengthening an already-long European market, sources said on Friday.

Buyers have received a substantial number of offers from Russian producers in the low end of the European price range of €1,010-1,090/tonne FD (free delivered) NWE (northwest Europe), which is down by €40/tonne ($54/tonne) from last week.

“There is more spot activity from Russian traders and prices are relatively attractive,” a buyer said.

A producer said: “This is having an impact on the European market and the current price situation. Russian material is appearing in Europe only for one reason, because they cannot sell in China where there is no market at the moment”.

Demand has dropped in the Asia-Pacific region amid negative sentiment in the Chinese real estate sector, which has shown a steep decline of prices since the beginning of October.

Offers in Asia have been cut to meet buyers's expectations but they are still reluctant to commit, limiting the number of spot deals concluded and pushing bids and offers further apart.

A producer said: “I’m not surprise that [Russian producers] are trying to sell butanol. What surprises me is that there are [European] customers wanting to buy it.

“Exactly the same thing happened in 2008, when [Russian producers] were talking very loudly about it but nothing really happened.

“Their product is much lower in purity and it cannot be used in many applications because of quality constraints. It all depends on how serious they [customers] are about quality controls”.

In 2008, Russian suppliers were very slow in reacting to sluggish demand and the destocking cycle, the producer explained. “They were flooded with material so they had to sell it even with negative margins”.

Another producer said: “The quality is lower although Russian material can be used in most downstream applications. I’ve heard some customers are not satisfied with the quality, but I think they will accept the product if it comes with a big reduction”.

Slow demand in the Chinese market has also led to some “relatively attractive” imports from the Asia-Pacific region, a European buyer said.

An increase in imports could worsen market conditions as the European butanol market is already long with poor buying interest, ample availability and few export opportunities to offset low domestic market.

At the same time, producers aim to reach the first quarter of 2012 with low stocks, whereas some customers are only purchasing on a day-to-day basis amid fears that the eurozone crisis could extend the downtrend beyond the year-end. 

Margins, on the other hand, continue to narrow as undermined trade frustrates sellers’ attempts to benefit from softer feedstock values.

($1 = €0.74)

For more on butanol visit ICIS chemical intelligence  

Additional reporting by Cheong Su Yeen

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By: Abache Abreu
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