Europe BD hit by soft export demand but supported by LPG cracking

04 May 2012 13:55  [Source: ICIS news]

LONDON (ICIS)—The European butadiene (BD) market is under downward pressure primarily because of soft demand for export tonnes, but this is expected to ease with the start of the liquefied petroluem gas (LPG) cracking season and potential cutbacks in cracker production rates, market sources said on Friday.

The European butadiene market is structurally long and usually relies on demand from both Asia and the US for support.

Plunging spot prices in Asia caused by reduced derivative demand, which in turn has been due to macroeconomic concerns, has left European volumes out in the cold.

Although export prices have mirrored the drop to a certain extent, falling $400/tonne (€304/tonne) in the week ending 27 April to $2,500-2,600/tonne FOB (free on board) ARA (Amsterdam, Rotterdam, Antwerp), European producers have baulked at matching current Asian prices.

The Asian bid-offer range is $2,000-2,500/tonne CFR (cost and freight), according to European sources.

Sources said that US demand has been covered by Brazilian and Korean tonnes, as well as by tonnes contracted from Europe.

“[Its] impossible to sell to Asia at their currrent CFR (cost and freight) prices, [and] challenging to find markets in the USA” a producer said.

Traders said the main issue was trying to find any buying commitments.

“Its not a matter of price, just a matter of finding people to take it” a trader said, adding “commitment first, product second”.

European players have adopted a wait and see attitude, but at this stage no one is predicting any extreme supply BD length which would ensure European spot prices fall further.

Cracker economics favour LPG cracking which produces less of the crude C4 BD feedstock molecule, so where possible, operators are already shifting into a light feedslate.

“I will keep my [tonnes] as we expect more propane cracking” the producer said.

In addition, everyone is well aware of the speculation surrounding cracker operating rates. Many have the view that operators will be forced to cutback in May because of the bearish pressure on key ethylene derivatives, notably polyethylene (PE).

“I have the impression that there is not much length in the market, due to cracker trims and light feed cracking” a second producer said.

“Customers were realistic about this [potential production constraints]” the second producer added, refering to the recent May monthly contract price settlement at €2,250/tonne FD (free delivered) NWE (northwest Europe), a decrease of €25/tonne from April. 

The price settlement was described by some as “technically a rollover”, as there had been expectations for a bigger drop.

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($1 = €0.76)

By: Nel Weddle
+44 20 8652 3214

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