11 October 2013 10:14 [Source: ICB]
Spot butadiene (BD) prices in Asia may continue rising in the weeks ahead amid tight supply, which may be aggravated if more cracker operators switch to using liquefied petroleum gas (LPG) as feedstock for production, industry sources said on 2 October.
Buying momentum is expected to pick up the following week, when players in China return from a week-long National Day celebration, they said.
Butadiene supply could be reduced with a shift in feedstock to LPG
On 27 September, BD spot prices were assessed at $1,450-1,520/tonne CFR NE Asia, representing more than a 20% surge from end-August, according to ICIS data.
BD supply has been tighter-than-expected because of the delay in the start-up of new BD units in China, Indonesia and Taiwan. Three BD units with a combined capacity of 350,000 tonnes/year were originally slated to start up in July-August, but are now only expected to start in October and November, industry sources said.
SHIFT TO LPG feed
A major South Korean BD producer has ran out of October stocks, with November cargoes expected to be limited as it is switching to LPG feed at its cracker instead of naphtha, which is more expensive.
Using LPG as feedstock instead of naphtha at crackers yields lower BD output.
If more cracker operators followed suit in switching to LPG, spot BD supply would be tighter than expected in November, when some downstream synthetic rubber producers are expected to replenish their stocks after completing turnarounds at their plants.
Against this backdrop, BD prices may continue spiralling upwards, market sources said.
“It all depends on the Chinese domestic prices, and also on November spot availability, which looks limited, ” a major Korean supplier said.
The Chinese market was closed up to 7 October for the National Day holidays, which started 1 October. Domestic BD prices in China rose to yuan (CNY) 11,900-13,000/tonne ($1,944-2,124/tonne) DEL (delivered) on 27 September, up by more than CNY2,000/tonne from end-August, said Chemease, an ICIS service in China.
Chinese traders were actively procuring spot BD material heading into October because they expect prices to rise further upon their return to the market after the holidays, industry sources said.
The rapid run-up in Chinese domestic BD prices has spurred traders with stocks-in-hand to hike offers to $1,600-1,700/tonne CFR NE Asia for November shipments, market sources said.
DOWNSTREAM STILL WEAK
But BD’s uptrend may not be sustained for long because of general weakness in the downstream tyre and automotive industry amid the global economic slowdown, industry sources said.
BD is a major feedstock for styrene butadiene rubber (SBR) and butadiene rubber (BR), which are used in the production of tyres for the automotive industry.
“We will have a clearer picture when the Chinese market re-opens, but BD prices may be near peak if supply eases, and if the downstream synthetic rubber makers cut their production,” a trader said.
Some synthetic rubber producers are mulling cutting production to stem losses since they could not raise their product prices in the face of rising BD prices.
“We have no margins and may extend the shutdown of our butadiene rubber plant if the BD prices continue to go up,” a major Korean synthetic rubber maker said.
Demand for SBR and BR is expected to remain subdued in the fourth quarter, according to industry sources.
“We do not expect demand for synthetic rubber to be robust in the fourth quarter as most of the tyre makers have already covered their rubber requirements for October and November and the last month of the year – December – is traditionally a slow month,” another synthetic rubber maker said.
Some market players cited that the new BD supply coming on stream – from Sichuan Petrochemical’s 150,000 tonne/year BD unit in China, Chandra Asri’s 100,000 tonne/year unit in Indonesia, and CPC’s 100,000 tonne/year unit in Taiwan – will halt the price upturn in November.
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