FocusAsia BD surge may fizzle out in Q2 as end-users cut production

14 February 2012 03:55  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS)--Spot butadiene (BD) prices in Asia may soon halt months of upsurge, as production of synthetic rubbers (SR) – BD's biggest downstream sector – may be cut further in the second quarter, industry sources said on Tuesday.

Spot offers for fresh March shipments of BD have soared to a record high of $4,500/tonne (€3,420/tonne) CFR (cost and freight) northeast (NE) Asia) this week, driven up by traders with precious stocks-in-hand, they said.

Reeling from spiking feedstock costs, synthetic rubber makers moved to cut their losses.

A number of downstream butadiene rubber (BR) producers, including China’s Shanghai Gaoqiao, South Korea’s LG Chem and Korea Kumho Petrochemical (KKPC), Taiwan’s TSRC and Thailand’s BST Elastomers, have either shut down or cut operating rates at their facilities.

“We have no choice but to cut the operating rate of our 55,000 tonne/year butadiene rubber (BR) plant to 70% of capacity as our margins are negative,” a company source at BST Elastomers said.

“BD prices are higher than BR and this is not sustainable,” another synthetic rubber producer said.

In the week ended 10 February, BD prices were at $3,900-4,000/tonne CFR NE Asia, while the downstream BR prices were at $3,700-3800/tonne CFR NE Asia in the week ended 9 February, according to ICIS data.

BR must be priced about $600-700/tonne higher than BD for BR producers to generate any margins, industry sources said.

BD is the feedstock used to make synthetic rubber such as BR and styrene butadiene rubber (SBR), which go into manufacturing tyres for automobiles.

SBR plants have also started to cut operating rates, including Fuxiang Chemical’s 100,000 tonne/year facility at Quanzhou in China's Fujian province. The plant is currently running at 50-60% of its capacity.

Traders scrambling to secure dwindling BD stocks in a tight market have posted higher-than-expected bids for sales tenders issued by several producers in Asia.

The latest sales tender by Bangkok Synthetics (BST) of Thailand was awarded to a Japanese trader at $4,030/tonne FOB (free on board) Mab Tha Phut on 13 February.

The 2,000-tonne spot cargo is scheduled to head to northeast Asia in early March, according to industry sources.

With inter-regional freight costs at $120-150/tonne, this works out to around $4,150-4,180/tonne CFR NE Asia, traders said.

Come April, however, price pressures may ease with demand expected to lessen, while supply will be augmented by the arrival of deep-sea cargoes into Asia, industry sources said.

About 5,000 tonnes of BD from Europe are likely to be shipped to Asia in March, with the downstream SR makers unwilling to consider offers above $4,000/tonne CFR NE Asia, traders said.

BD spot prices have been on a roller-coaster ride since last year, hitting a record high of $4,300/tonne CFR NE Asia in July, then plunging to as low as $1,550/tonne CFR NE Asia in November, ICIS data showed.

A heavy cracker shutdown schedule, unplanned cracker outages and production cutbacks in Asia, Europe and the US have tightened supply, thereby fuelling BD’s price spike from November 2011.

($1 = €0.76)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Helen Yan
+65 6780 4359

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