Supply length threatens European butadiene market

LONDON (ICIS)–European butadiene (BD) supply will lengthen as planned extraction unit turnarounds finish while demand remains poor both at home and abroad, market sources said on Thursday.

With lengthening supply comes weakening spot prices, and European BD sellers are increasingly unable to ignore the downward pressures being seen on the global market, they said.

Until now, European prices in 2013 had been held up somewhat artificially as supply constraints in Europe kept producers’ systems balanced to tight, enabling them to shrug off the weakness being seen in the US and especially Asia. But this also allowed more competitively priced volumes from Asia and the US to displace European derivatives.

Over the past couple of weeks, sources have noted heightened trader activity and enquiries from producers checking buying needs.

“We see some length threatening Europe,” said a major producer, adding, “we need to count on quite a bit of material availability [going forward].”

“The situation is quite uncertain. There are no positive signals from downstream,” said another producer.

“I am getting quite some calls from people interested to sell,” a major consumer said. “The erosion in Asia is not helping them to place the excess material unless [at a] big sacrifice.”

Another consumer said it was also being regularly asked whether it could take any more and said that it had “heavy difficulties to fulfil” its contract obligations.

While some sellers appear to have worked to reduce their own spot exposure by doing some deals in advance and organising swaps, others would have held back and waited in the hope that global demand would pick up. This looked to be the case when Asia showed a little rebound in early May, but the news from Asia has since been less than positive.

Sources are watching for the restart of LyondellBasell’s extraction unit at Wesseling in Germany which is due over the 8-9 June weekend, according to some sources. The company has expanded capacity by 40%. Versalis’ BD unit at Ravenna in Italy is also expected back on line by the end of the month.

On the other hand, Evonik’s 220,000 tonnes/year BD unit at Marl in Germany will go down for maintenance from about 12 June for four weeks, and major consumer Solvay is due to be back on line in the end of June. It consumes roughly 1,000 tonnes/day of BD at its adiponitrile unit at Chalampe in France.

Some sources said that a timely restart of the Chalampe unit would take a lot of the length out of the market, but most said that its return could not fully compensate for the underlying reduced demand even assuming that it runs at full rates.  

Export prices are being indicated around $1,100/tonne (€836/tonne) FOB (free on board) NWE (northwest Europe), but many sources said that levels would have to be lower to secure demand. Numbers of $1,000/tonne and below are also being mentioned amid some discussions of prices around $1,350/tonne CFR (cost and freight) in northeast Asia.

Compare these figures with the current gross contract price – €1,250/tonne FD (free delivered) NWE – the lowest contract price since contracts changed to monthly in January 2011 – and the pressure being felt by European derivatives producers is clear.

“We have lost market share in the export market and now in the domestic market [because of] imports; further down the chain our customers also lose market share,” the major consumer said.

It added that if BD prices stayed high and their outlets for derivative sales shrunk, it would have no choice but to cut BD consumption further.

Sources agreed that more positive economic data is needed to support bottom-line demand and that this has not been forthcoming.

($1 = €0.76)

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