August US BD contract nominations coming in 39% below July

19 July 2013 18:16  [Source: ICIS news]

August US BD contract nominations coming in 39% below JulyHOUSTON (ICIS)--One US butadiene (BD) producer has put out an August contract price nomination of 40 cents/lb ($882/tonne, €670/tonne), or 39% below the July contract price of 66 cents/lb, sources said.

A second producer is expected to match that nomination on Monday.

"It may not be enough," said one styrene-butadiene-rubber (SBR) producer that has been pressuring US BD producers to lower their monthly contract price in line with Europe and Asia.

It has been a steady decline for US-made BD since April. At the start of the year, the contract price for BD was 76 cents/lb among the three producers that account for about 85% of the market.

Expectations were that US BD would slowly rise through the year to above $1/lb. But then demand waned following the Lunar New Year in Asia.

BD was priced at 84 cents/lb in March and April and has fallen steadily ever since. The US BD contract price among the three key players was 79 cents/lb in May, 74 cents/lb in July and 66 cents/lb in July.

The 39% price decline from July to August is not the single-biggest monthly decline in US BD prices. In December 2008, during the worst days of the US recession, the price dropped 48% from 97 cents/lb in November 2008 to 50 cents/lb in December. In January 2009, the price dropped another 34% to 33 cents/lb. The monthly contract price eventually dropped as low as 25 cents/lb before rising sporadically to its most-recent high of 175 cents/lb in August 2011.

The main reason behind the recent price drop is lacklustre demand in the replacement-tyre market, which accounts for about 80% of US BD production.

US BD and SBR producers are anxiously awaiting the second-quarter and first-half 2013 earnings conference call with Goodyear on July 30. During its first-quarter call, the Akron, Ohio, tyre maker said it sold 1m fewer tyres in North America in the first quarter than a year ago.

Most market participants do not expect any better news from the second-quarter conference call. In fact, most market sources have stopped looking for a turnaround in the replacement-tyre market in 2013.

Initially, some sources predicted replacement-tyre sales would pick up in the first quarter of 2013, but now sources are backing off of those predictions and saying "first half of 2013." But some sources even think that projection is optimistic, given the poor macroeconomic conditions in Europe and Asia, as well as lacklustre growth of less than 2% in the U.S.

"I've given up trying to guess when this market is going to turn around," said one pessimistic source.

($1 = €0.76)

By: Mark Yost
+1 713 525 2653

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