FocusEurope BD supply tight on good domestic demand, pull from US

13 February 2014 15:57  [Source: ICIS news]

LONDON (ICIS)--European butadiene (BD) supplies have tightened because of buoyant domestic consumption and strong export demand from the US, but some bearish sentiment persists with Asia yet to respond because of pressure from weak natural rubber (NR) prices, market sources said on Thursday.

Contractual offtake for domestic consumers has been fairly strong since the start of the year, partly because of re-stocking, partly because of the cost advantage afforded by the comparatively weaker European BD contract price and now also some suggested pre-buying activity on the back of speculation that the March contract price will increase.

“There is a lot of demand and a lot of requests,” a European producer said.

“I have the impression that the longer I wait [to sell] the better it will be,” it added.

Spot levels, having languished at $1,250-1,300/tonne FOB (free on board) NWE (northwest Europe) for the first couple of weeks of 2014, are now being talked at $1,400/tonne and above.

As well as the reasonably healthy domestic demand, European BD production continues to be constrained by reduced cracker operating rates and the preference for some operators to utilise a greater proportion of light feedstocks such as liquefied petroleum gas (LPG) because of economics. Light feedstocks produce less BD feedstock crude C4 (CC4).

The force majeure declaration by LyondellBasell last week on supply from its Wesseling, Germany, unit will have added to the restriction.

US contract prices rose about 5 cents/lb for February and spot numbers have risen rapidly over the past couple of weeks because of local production issues, and at around 80 cents/lb delivered are high relative to the prevailing contract price. There is some talk that volumes have already been secured at or close to 85 cents/lb delivered.

One US BD consumer referring to the rapid rise in BD prices said: “ I am bracing for an ugly reaction from my customers... [they] have been feeling the BD pain for a while.”

While sources are keeping an eye on European cracker rates amid some less than positive views regarding ethylene and its key derivative polyethylene’s (PE) performance, for many the primary concern is the soft NR pricing and the impact that this is having on synthetic butadiene rubber (SBR) demand.

“With natural rubber quite low in price, the pressure on synthetic is palpable,” the US consumer said.

Lower NR prices weaken demand for SBR as tyre producers can switch between the two, and although NR prices appear to be on the rebound, sources are unsure whether this will go far enough to be of real benefit to SBR.

A heavy cracker turnaround slate beginning in March in Asia is likely to provide some support, however, and some sources feel that Asian demand is already beginning to wake up to the fact that they are likely to see limited availability. This is particularly being brought home with news this week that a 5,000 tonne cargo will load second half February ex-Korea, widely heard sold at about $1,415/tonne FOB.

With all the activities focused transatlantic and uncertainties in Asia, European players are already speculating on the outcome of the March contract price discussions.

“I am expecting a nice jump on the CP [contract price],” the European producer said, in order to reflect the gap between spot and the current contract price.

However, a second European producer said: “I don’t expect huge steps [for the March contract price],” adding that it was best to be conservative following last year’s volatility.

Others agreed.

“We have to be careful not to go up, up, up and then suddenly drop,” a European consumer said, again referencing last year’s dramatic swings in the contract price.

“I am forecasting a slight increase driven by the US, but with risk of a downturn coming from Asia,” it added.

The March contract price discussions will get under way in a couple of weeks’ time.

Additional reporting by Helen Yan

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By: Nel Weddle
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