26 July 2013 08:43 [Source: ICB]
European butadiene (BD) spot export prices have reached new three-year lows, forced down by weak global demand, impending new Asian capacities and ever-decreasing buying indications, market sources said on 19 July.
The main problem for most European producers and traders was that there appeared to be no end in sight. Everyone hoped that the market soon would reach a bottom. "The market is terrible," said one producer, and this view was echoed across the market.
Poor demand for products that use BD, such as tyres, have contributed to price falls
And a third producer said: "We are worried. [We] just don't think this is just a short-term story."
Europe is structurally long in BD and as a result relies on Asian and US demand. This demand has been weak for most of the year but planned and unplanned cracker and BD unit turnarounds constrained supply in Europe.
WOLF FROM THE DOOR
This offset the poor market situation elsewhere, keeping the wolf from the door for much of the first five months of 2013.
Now, with planned maintenances complete and with tyre demand - the primary outlet for key BD derivative styrene butadiene rubber (SBR) - still extremely poor, there has been nowhere for European suppliers to hide.
"It's a really bad set of circumstances," a trader said referring to the onset of new BD capacity in Asia while demand is low.
A 5,000 tonne cargo has recently been fixed to South Korea from Europe at a price in the mid $800s/tonne (mid-€600s/tonne) CFR (cost and freight) NE (northeast) Asia. Given freight rates of at least $400/tonne, sources said that the FOB (free on board) netback would be somewhere in the low $400s FOB - equivalent to the low €300s/tonne.
These prices, being well below the cost of feedstock naphtha, are unsustainable for European producers. "We are thinking about closing one BD line," the first producer said.
The third producer said it had not yet taken a decision about production in August as they were still uncertain how hard the crackers would run. Many had assumed that demand for polyethylene (PE) and polypropylene (PP) would be such that crackers would have to cut rates once more, but so far orders have held up and so crackers are running at relatively high rates of 85-90%.
"A deal in the mid $800s [CFR NE Asia] is a good deal," the trader said adding that it had heard of bids at $800/tonne and below.
"The US is physically full and we see no demand for August; September will depend on the outlook," the trader added.
While there was still some buying interest in Asia, the problem was finding commitment as prices were changing so rapidly.
"Every time we manage to do a deal to enable our derivatives to compete on the global market, no sooner have we secured the BD, then the Asian [derivative] price continues to fall," a consumer said.
Such low prices in Asia might encourage the reverse arbitrage window to open but there did not appear to be any discussions on this basis yet. Sources said prices would have to be low to encourage European consumers to take it on and that most were struggling with contracted volumes anyway and simply not in a position to accommodate such tonnage.
However, it was possible, the trader said "with all the new capacities and if things continue to go badly".
European players may have just got their wish because there were beginning to be some signs of stabilisation albeit at a low level.
One market observer said that the market was looking stable to soft on 19 July at around $840-900/tonne CFR Asia.
This was because Chinese traders were starting to look for cargoes for the August-September time frame.
Some sources were sceptical that much could change in the short-term.
"Asia drove us into this place and one day they will take us out," the third producer said.
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