Price and market trends: US butadiene market eyes Asia

08 March 2013 09:25  [Source: ICB]

After the March contract settled up 8 cents/lb the week ended 1 March, all eyes in the US butadiene (BD) market are on Asia and what is happening with the rubber and tyre markets.

"The price increase in March was not unexpected," said one market source. But given the high BD inventories following the lay-off for the Chinese Lunar New Year, "it's hard to get ultra bullish about any further increases in BD prices", the source said.

Trye swing Rex Features

 Rex Features

US butadiene prices swing upwards for March

Another market participant said that the key for BD prices in Asia will be how derivatives such as butadiene rubber (BR) and styrene butadiene rubber (SBR) respond.

"Unless we see some demand pull, it's probably going to be difficult for BD to get a whole lot higher," the source said.

"We're watching the Asian market very carefully to see if there's real demand from the rubber producers," another source said.

There is also concern that Asian producers could cut production even further if BD prices continued to rise.

Falling natural rubber (NR) prices have dampened buying sentiment as downstream synthetic rubber makers, the largest consumers of BD, have mostly stayed on the sidelines to wait for a clearer direction. NR and synthetic rubber (SR) are substitutes for each other in the production of tyres for the automotive industry, and their prices tend to move in tandem.

The week ended 22 February, SMR 20-grade NR prices at the Malaysia Rubber Exchange fell to $2,940/tonne (€2,264/tonne) FOB (free on board), down by $190/tonne from 6 February.

Downstream BR prices currently average $2,550/tonne CFR (cost & freight) NE Asia, and attempts to raise the BR prices to more than $2,700/tonne CFR NE Asia have met resistance, because of the lacklustre global automotive industry.

RISES IN CHINA

Meanwhile, Chinese domestic BD prices rose to yuan (CNY) 14,600-15,200/tonne ($2,336-2,432/tonne) DEL (delivered) during the week, up by CNY600-900/tonne from 8 February, before the Lunar New Year holiday on 9-15 February.

Softness in the world tyre market is pushing rubber prices down. Several sources said replacement tyre sales are down because of weakness in the global economy.

"We are definitely hearing that consumers are choosing not to replace tyres because of uncertainty about the economy," one source said.

Others said that concerns over the US budget crisis - the so-called sequester - are also eroding consumer confidence and compelling consumers to delay purchases.

Weak global auto sales are depressing new tyre sales, although auto sales in the US continue to rise. Analysts said that February sales are expected to be in the 15m-15.5m annualised range. While the current pace is below pre-recession US sales volume, it is much higher than the 10.4m new vehicles sold in the US in 2009, when sales were the lowest they'd been since the early 1980s and GM and Chrysler filed for bankruptcy.

But in other parts of the world, auto sales are a very different story. In Europe, sales in 2012 fell by the most in two decades. In January, conditions weren't much better, with sales down 15% in France to their lowest level since 1997. Italian sales were down 17.6%, while Spain saw only single-digit declines thanks to subsidies.

US BD CONTRACT UP

The March contract for US butadiene (BD) settled at 84 cents/lb ($1,852/tonne, €1,408/tonne) among the three producers that account for more than 80% of US capacity, market sources said.

US BDThe March contract price is up 8 cents/lb, or more than 10%, from the February contract price of 76 cents/lb.

Two of the three producers had nominated price increases of 8 cents/lb and 10 cents/lb, respectively. Market sources confirmed on 26 February that a third producer had agreed to the 8 cents/lb price hike, and the other producer brought its proposed hike down from 10 cents/lb to 8 cents/lb.

A fourth supplier, which accounts for around 18% of US capacity and usually does not settle with the rest of the market, had nominated a price rise of 3 cents to 86 cents/lb. Confirmation of that settlement was unavailable.

One market source said the price rise for March was pushed by tight supply rather than greater demand, as well as moderate activity in the spot market.

Another market source said that long term he didn't see much upward pressure on BD prices because of softness in Asia and concerns about margins on rubber and tyre prices.

Producers in North America include ExxonMobil, LyondellBasell, Shell and TPC Group. Buyers include Ashland, Invista, LANXESS, Michelin and Negromex.


Author: Mark Yost



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