FocusUS already having ‘buyer’s remorse’ as Asia BD at $1,450/tonne

02 April 2013 18:39  [Source: ICIS news]

US already having ‘buyer’s remorse’ as Asia BD at $1,450/tonneBy Mark Yost

HOUSTON (ICIS)--It has been less than a week since the butadiene (BD) US Gulf April contract price settled at rollover, or 84 cents/lb ($1,852/tonne, €1,445/tonne), and some market participants are already having “buyer’s remorse.”

“I had buyer’s remorse the minute it settled at rollover,” said one disgruntled source. “We’ve had fundamental softness in the market; it has to eventually play out in the price of BD.” 

The sharp decline in BD prices in Asia has opened up the arbitrage window to the US. With loads being shipped at $1,450/tonne CFR NE Asia, and freight from Asia to the US at about $350-400/tonne, it makes it commercially viable for Asian suppliers to export their BD to the US, where spot prices are higher than $1,852/tonne CIF (cost, freight and insurance) US Gulf.

Some US buyers are concerned that Asian BD could fall as low as $1,300-1,350/tonne. If that happens, then it makes even more economic sense to ship Asian BD across the Pacific. All of the downward pressure on BD prices has made buyers and sellers rethink their assessment for BD for the year. In January, market participants had expected BD to slowly rise in the US and go back up above $1/lb.   

“No doubt the price curve has come down,” said one market player. “I still think it’s going to rise later this year, but not nearly as high as everyone had expected.”

Others were more sceptical of the promise of cheap Asian BD coming to the US.

“I’m surprised that [Asian producers] are taking a shot that US prices will stay high enough to keep it worthwhile,” one market participant said. “But then again, I wouldn’t be surprised to see the Asian price drop further. The tyre business is really dead.”

“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 that 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.

As to the decision to rollover US prices for April, one market participant said, “Sometimes you get it right, and sometimes you miss it. Hindsight is 20-20. At the time, it was the right move given what we knew about the market. Producers thought they were making the right decision and most of the rest of us agreed.”

($1 = €0.78)

By: Mark Yost
+1 713 525 2653

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