Price and market trends: Asia BD rebound may be short-lived on oversupply, weak demand

09 August 2013 09:25  [Source: ICB]

Spot butadiene (BD) prices in Asia have rebounded but may not be able to sustain gains for long, with fresh supply hitting the market in September, while demand from the downstream synthetic rubber (SR) sector is still weak, industry sources said on 31 July.

Regional sellers are quoting more than $1,000/tonne (€750/tonne) CFR (cost and freight) NE (northeast) Asia for spot August BD this week, taking into account recent gains in upstream crude and naphtha prices, which hit $108/bbl and $918/tonne CFR Japan, respectively, on 19 July.

On 26 July, BD prices were assessed at $920-970/tonne CFR NE Asia, up by $70-80/tonne from the previous week, after plunging by nearly 60% since mid-February, according to ICIS data.

"The recent BD price rebound is due mainly to sentiment and speculation in China, it does not reflect the real fundamental supply/demand balance," a South Korean SR producer said.

Tyres Rex Features

Rex Features

Demand from downstream rubber chemicals markets is poor

It will be a short-term rebound "as it is difficult for the downstream SR makers to support BD prices above $950/tonne, given the weak tyre market", a Chinese SR maker said.

Demand for tyres is still weak amid a sluggish global automotive industry, with the key China market showing continued economic weakness, industry sources said.

China is the world's largest automotive market and a major production centre for tyre makers.

A number of downstream SBR and BR producers have either reduced production, with some planning to shut down their plants if market conditions do not improve. Among those that cut run rates at their synthetic rubber plants are Korea Kumho Petrochemical Co, Shen Hua Chemicals, LG Chem, TSRC and Zhechen Rubber.

BD's price gains the week before were largely brought about by speculative trades in the Chinese domestic market, where supply is being crimped by delayed start-ups at new plants, unplanned shutdowns and much reduced production at running facilities, industry sources said.

Qixiang Tengda Chemical's 100,000 tonne/year BD unit at Zibo in Shandong province was taken off line on 25 July because of weak market conditions.

Liaoning Huajin Tongda Chemical, meanwhile, is considering shutting its 100,000 tonne/year plant in northeastern China next month for the same reason, industry sources said.

Sichuan Petrochemical, on the other hand, has delayed the start-up of its new 150,000 tonne/year BD unit at Chengdu in Sichuan province to September, from the original schedule in July, according to industry sources.

Heightened interest from Chinese traders to procure spot material sent domestic BD prices soaring by more than yuan (CNY) 1,500/tonne ($245/tonne) to CNY 8,500-8,700/tonne delivered in the previous, according to Chemease, an ICIS service in China.

The spike in domestic BD prices also stoked Chinese traders' interest to tap the import market for supply, thereby nudging up the regional prices of the olefin, industry sources said.

While there is a good chance that BD's technical rebound will continue through August, fresh supply from scheduled plant start-ups, as well as deep-sea inflows from Europe, is expected to limit further price gains, the sources added.

Asia BD

Asia is expecting more than 450,000 tonnes/year of new BD capacity to come on stream in September. These include CPC Corp's 100,000 tonne/year unit in Taiwan, Chandra Asri's 100,000 tonne/year plant in Indonesia, Wuhan Petrochemical's 120,000 tonne/year and Sichuan Petrochemical's 150,000 tonne/year plants in China, according to industry sources.

Furthermore, traders are likely to bring in BD from Europe as the arbitrage window has recently opened, market sources said.

Spot prices in Europe were at $500-550/tonne FOB (free on board) Europe in the week ended 26 July, according to ICIS.

With freight costs from Europe to Asia at $350-400/tonne, the margins are workable for traders as BD prices in Asia are expect-ed to rise to above $1,000/tonne CFR NE Asia, industry sources said.

"I am sure the BD price will drop in September as there is abundant supply and demand is weak," a BD consumer said.

Synthetic rubbers, including styrene butadiene rubber (SBR) and butadiene rubber (BR), are used in the production of tyres for the automotive industry.

By: Helen Yan
+65 6780 4359

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