AFPM '12: US BD contracts for April end in 3-tiered settlement

02 April 2012 00:04  [Source: ICIS news]

SAN ANTONIO, Texas (ICIS)--US butadiene contracts have settled at three different levels for April, buyers said on Sunday, calling the three-tiered settlement a "mess" and an indication the US needs to reconsider how it settles its monthly BD contract.

The split settlement in April followed nominations for increases of 7 cents/lb ($154/tonne, €116/tonne), 10 and 15 cents/lb by the four main US producers that participate in the settlement process.

While split settlements in the US have become the norm, the monthly contract is mostly divided between a group of three producers that converge at the lowest price for the month and a fourth supplier that sets its own price and refuses to follow the rest of the market.

US BD contracts in March were split at $1.45/lb and $1.55/lb.

According to sources, April added an extra layer of complexity because two of the three suppliers that tend to settle together refused the match the lowest price for the month.

Meanwhile, the producer who split the market in March did it again in April, although the supplier, which had settled at $1.55/lb in March, agreed to lower its April contracts to $1.62/lb from its orginal nomination of $1.65/lb.

As for the three producers who settled March at $1.45/lb, two of those suppliers settled at $1.55/lb, refusing to match the third producer, which nominated $1.52/lb, the lowest price for April.
"It is a mess," a US buyer said on the sidelines of the International Petrochemical Conference (IPC) in San Antonio.
"The mechanism [in the US market] is broken," the source added, calling for the US market to find a new way to settle its prices.

US BD prices had been widely expected to rise in April in the fourth increase in as many months for the contract. BD prices in March rose by as much as 23%.

The uptrend stems from constrained supply rather than strong demand, a source said, referring to restrictions at two US BD producers, which were on allocation at 45% and 70% in March as a result of cracker turnarounds.

The outlook for BD after April is uncertain, as some market participants have predicted that the market could have peaked with the April increase, while others said BD could still hit the record levels of 2011, when contracts hit $1.75/lb and spot prices rose past $2.00/lb.

US buyers have warned of potential demand destruction from high prices, with at least one consumer predicting that BD prices in April have reached breaking point for markets downstream.

Other sources attending the IPC cited continued weakness downstream, saying tyre demand is "awful" in Europe and "weaker than expected" in the US.

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC continues through Tuesday.

($1 = €0.75)

By: William Lemos
+1 713 525 2653

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