Price and market trends: US butadiene players wait for recovery

17 January 2013 19:51  [Source: ICB]

While the tyre market remains weak in the US, demand for BD is expected to remain low until the second quarter

US butadiene (BD) sources are emphasising that when downstream styrene butadiene rubber (SBR) producers begin to order more than contractual minimums, they will start to see the US BD market regain strength.

 

 The US tyre replacement market has been weak

Copyright: RexFeatures

The SBR industry is a major consumer of BD, with about 75% of the chemical composition of SBR coming from BD. Tyres are the major end-product of SBR, accounting for 75-80% of its use. When the tyre market sees weak demand, so do the SBR and BD markets.

Although BD is not solely tied to the tyre industry, BD sources continually point to the tyre market as being key for their success in moving material.

Other downstream markets for BD include acrylonitrile-­butadiene-styrene (ABS); adiponitrile (ADN), which is used to produce nylon 6,6; and butadiene rubber (BR).

BETTER FOR ABS
The ABS market has not seen the same severe downturn in demand as SBR. In fact, the automotive industry has helped ABS suppliers and buyers enjoy one of their best years for some time. About 25-30% of ABS use is in the automotive sector.

Unfortunately, BD is a small component of the ABS material, about 5-30%, but typically around 20%. Styrene is the largest component of ABS.

The automotive sector also helped the nylon market to have a better-than-expected year.

Despite those highlights for the BD market, it continues to be a waiting game that has been taking place for much of the second half of 2012.

It is taking its toll on those in the BD market involved in the industry's largest downstream sector. The wait is not over, but it could be in the first half of 2013, sources believe.

Many of those involved would prefer the wait to be a short one. However, several market sources believe it will not be until the second quarter that market conditions improve.

US BD contract prices have fallen by 29% from the June contract price of $1.07/lb ($2,359/tonne, €1,769/tonne) and by 50% since the peak of 2012 contract prices, $1.52/lb, in April.

The US BD market has seen demand dwindle throughout the second half of 2012. At the same time, contract prices fell below $1.00/lb and have stayed below that level, moving from $1.07/lb in June to 90 cents/lb in July, 83 cents/lb in September and76 cents/lb for December.

While BD buyers have welcomed the lower contract prices, they have little room for material as their downstream users have no need for it.

Producers are hoping contract prices do not go lower, as they say margins have eroded.

IMPORT THREAT
At the same time, buyers say producers must remain competitive with their pricing or face an ­influx of lower-priced material from abroad, which would be even more devastating for the US producers.

Several BD and SBR sources agree that the following action plan must take place before those in the BD market will be able to reap the benefits of a resurgent SBR market.

On a regional basis, those measures include the need to determine a decisive direction for the US economy.

Until the public starts to replace tyres, manufacturers, and therefore SBR producers and BD producers, will continue to suffer from weak sales.

When flat sales projections are based on low sales for the previous year, that does not bode well for the industries involved.

Another aid to tyre sales will be a drop in the unemployment rate, but only if it reflects people gaining employment, not leaving the lists because they have been unemployed for more than six months or stopped looking for work.

Tied to this is consumer ­confidence. Without its return, the US driving public will continue to minimise its need to drive, and the replacement of tyres will be delayed.


By: Wesley Busch
+1 713 525 2653



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