Chemical Profile: Americas butadiene

17 January 2014 09:40  [Source: ICB]

USES

About 75% of the butadiene (BD) produced in the US is used for the production of styrene butadiene rubber (SBR), which is used in varying degrees to make tyres.

About 80% of the SBR market is for replacement tyres, a market segment that affects both SBR and BD up through the supply chain. Demand for SBR and BD has been significantly reduced because of weak macroeconomics in Europe and Asia and an only slightly better consumer market in the US.

US BD
US BD

Most of the rest of US BD production goes toward making acrylonitrile-butadiene-styrene (ABS), which is used to make plastics for the automotive industry.

Another large ABS market is appliances and electronics, which is mostly driven by the housing market.

A small segment of ABS production is also used for plastic piping in housing, a ruthless market that typically offers producers only razor-thin margins.

SUPPLY/DEMAND

Several US BD market players are optimistic that 2014 will see strong demand growth on the back of tyre replacement sales and new car sales.

With a strong year of automobile sales in 2010 and the typical tyre replacement cycle lasting four years, some are expecting to see the first batch of new demand in 2014.

However, others are more pessimistic, arguing that driving is down in the US, largely because of high gasoline prices and environmental concerns.

Additionally, some BD and SBR sellers say consumers are more likely to hold off on replacing tyres and would rather purchase electronic and entertainment goods.

BD supply is expected to remain tight in the US for 2014, owing to the predominance of light feeds for most US crackers, as well as early supply tightness from Europe, a key export region.

PRICES

US BD contract prices in 2013 continued their downtrend throughout the year, owing to weak domestic demand from the SBR market and plastics markets as well.

US December BD contracts settled at 55 cents/lb ($1,213/tonne), down 28% year on year from the December 2012 settlement of 76 cents/lb.

The highest contract price for 2013, 84 cents/lb in March and April, was lower than all but the last four months of 2012.

Spot BD prices increased at the end of 2013 on the back of supply tightness, but failed to move above 90 cents/lb during the year, the first time that had occurred since 2009.

Spot BD prices started 2014 in the 65-70 cent/lb level, sources said, tracking tightness in the European market and tight supply in the US. However, some said the increase would be short-lived and was largely based on several prompt deals, rather than supply/demand factors.

TECHNOLOGY

BD is produced as a byproduct of the same steam cracking process used to produce ethylene and other olefins.

When heated to over 900˚C, aliphatic hydrocarbons give up hydrogen to produce a complex mixture of unsaturated hydrocarbons, including BD.

Traditionally, BD has been made from heavier feedstocks such as naphtha as it results in a greater yield.

But with the abundance of lighter feedstocks in North America, more BD is now made from ethane, despite the lower yield.

TPC, the largest producer of BD in the US, has announced plans to build a plant that makes BD by dehydrogenating normal butane. It is expected to come on line in late 2016, the company has said.

There are also efforts under way to produce BD from biomass, but they are still in the experimental phase.

OUTLOOK

Market players are mixed regarding 2014, with some optimism stemming from expectations that the tyre replacement market will grow above GDP, bolstered by continuing growth in new automobile sales.

Plastics markets are also expected to be stronger, especially in consumer electronic, automotive and construction uses.

Most market players, however, are taking a more cautious approach, arguing that tyre replacement sales will suffer as consumers spend money elsewhere, and that continued declines in driving activity will offset the emergence of new cars needing new tyres.

US BD prices are expected to stay below the $1/lb level for most of the year, with only severe supply shortages likely to spur prices above that level.

Some are expecting spot BD prices in the first quarter to peak in the 70-75 cent/lb level, with possible growth in the second and third quarters during the peak summer driving season.


By: John Dietrich
713-525-2600



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