13 March 2012 15:58 [Source: ICIS news]
(recasts, clarifying attribution in lead)
By Elaine Burridge and Andy Brice
LONDON (ICIS)--Although butadiene (BD) players continue to face fluctuating prices, the emerging economies and the potential growth of the automotive sector suggest the outlook is positive, a producer and consumer have told ICIS.
Delegates attending the recent ICIS 7th World Olefins conference heard that a combination of extraordinary events in supply and demand had driven BD prices to record highs globally, well above forecasts and sustainable levels.
It has been an excellent period for European producers. BD prices leapt by 88% from December 2010 to August 2011, double that of world gold prices, according to Rafael Cayuela, commercial manager, butadiene, at US-based consumer Styron.
“Global supply of butadiene is around 10m tonnes/year and last year the price went up by $1,000/tonne – so that means that the industry made $10bn,” said Cayuela.
“They’re enjoying a tremendous opportunity and they need to maximise production as much as they can because they are having record-high prices they have never seen before,” he said.
Besides high prices and volatile crude oil costs, several other factors also affected BD supply. The earthquake and tsunami in Japan last March was followed by the Libyan conflict, which took some crude C4s (CC4) out of the market. The Libya revolution reduced European CC4 supply by 3%, and cancelled about 40,000 tonnes of exports to North America, said Cayuela.
In addition, Turkey rerouted 65,000 tonnes of CC4 to North America and South Korea. Cracker turnarounds in Europe and North America cut BD supply by up to 15% in the second quarter.
There were also severe disruptions to the supply of natural rubber, said Cayuela. The natural rubber shortage accelerated price hikes and increased substitute use of synthetic rubber. Natural rubber reached $6,000/tonne – a 100% increase.
Derivative sectors have become vulnerable to substitution and face rationalisation or consolidation because of the high BD-naphtha spread. In 2006-2007, the average spread was $515 (€391), but this more than doubled to $1,388 in 2010-2011, said Ben Gallagher, C4s market manager of Switzerland-headquartered producer INEOS Olefins & Polymers Europe.
“The BD derivatives need to be able to pass on high pricing that has resulted from this supply-demand imbalance – and in some cases, it can lead to substitution,” said Gallagher.
He added that demand growth was being driven by the new Asian middle classes and their trend towards increased mobility. About 60% of BD goes into the automotive sector; while demand for synthetic rubber, acrylonitrile-butadiene-styrene (ABS) and engineering polymers is growing at 4.5-7% a year, he said.
“The driver for demand is cars. In terms of geography, it’s the BRIC countries – Brazil, Russia, India and China – that are driving the global economy. These countries are creating a whole swathe of new middle class who are educated, well paid and upwardly mobile,” said Gallagher.
Within these BRIC countries, 800m people are now entering the middle class.
Car ownership as a percentage of the population is growing rapidly and offers great potential. In Asia, only 5% own cars, compared with 55% in western Europe and 80% in the US.
Forecasts suggest that 2012 will be a record year for car sales, with emerging economies set to outsell the more mature markets.
($1 = €0.76)
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