FocusS Korea BD producers tap arbitrage window to the US

02 April 2013 04:37  [Source: ICIS news]

By Helen Yan

Asia BD producers eye arbitrage window to the USSINGAPORE (ICIS)--The recent plunge in butadiene (BD) prices in Asia has opened up the arbitrage window, prompting South Korean producers to ship out their surplus stocks to the US in a bid to stem the price falls, industry sources said on Tuesday.

Several South Korean BD producers have put together a 5,000 tonne spot cargo for loading to the US in the second half of April, industry sources said.

“We will ship out a 2,500 tonne spot cargo to the US. The other producers have another 2,500 tonnes. The combined cargo is 5,000 tonnes, which will be shipped to the US in the second half April. This will tighten supply in Asia, and stabilise the BD prices,” one of the South Korean BD producers said.

Asia BD prices plunged to $1,450-1,500/tonne (€1,131-1,170/tonne) CFR (cost and freight) northeast (NE) Asia in the week ended 29 March, down by nearly $600/tonne or about 30% since 1 March, when prices were at $2,000-2,100/tonne CFR NE Asia, ICIS data showed.

The sharp decline in BD prices in Asia has opened up the arbitrage window to the US, where prices are much higher, industry sources said.

April BD contract prices in the US were rolled over at 84 cents/lb, equivalent to around $1,850/tonne FOB (free on board) US Gulf.

Freight from Asia to the US costs about $350-400/tonne, which makes it commercially viable for Asian suppliers to export their BD to the US, where spot prices are higher than $1,850/tonne CIF (cost, freight and insurance) US Gulf, industry sources said.

However, several market players believe that the BD price in Asia may still have room to fall lower because of the weak downstream synthetic rubber market, and falling domestic prices in China, a key market for the material.

Abundant supply and weak demand in China have seen Chinese domestic BD prices falling faster than expected in recent weeks.

Chinese domestic BD prices have dropped by more than yuan (CNY)4,000/tonne ($645/tonne) since early March to CNY10,300-10,500/tonne DEL (delivered) this week, equivalent to around $1,400/tonne CFR NE Asia.

“Chinese domestic BD prices may fall below CNY10,000/tonne as Chinese traders have too much BD stocks to clear and demand is very weak,” a downstream Chinese synthetic rubber producer said.

“The outlook seems rather foggy for BD and prices may not recover in April or May as expected earlier because the rubber and tyre industry still looks weak,” an industry player said.

Several downstream synthetic rubber producers in China, South Korea and Taiwan - the main consumers of BD - have either cut their production output or shut down their plants for maintenance because of the weak global automotive industry.

Synthetic rubber is used in the production of tyres for the automotive industry.

Major South Korean synthetic rubber producer, Korea Kumho Petrochemical Co (KKPC), has reduced the operating rate of its butadiene rubber (BR) plants to below 40% of their total capacity of 340,000 tonnes/year, down from around 60% in March, according to a company source.

Other downstream BR producers which have cut their operating rates or shut down for maintenance include Sinopec Beijing Yanshan Petrochemical,  Fuxiang Chemical and Huayu Rubber in China and Taiwan Synthetic Rubber Corp (TSRC) in Taiwan.

Downstream butadiene rubber (BR) prices have fallen to $2,250-2,350/tonne CFR NE Asia, down by $300/tonne since 1 March, ICIS data showed.

($1 = €0.78 / $1 = CNY6.20)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Helen Yan
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