OUTLOOK ’14: Asia BD price increases to be moderate in Q1

By Helen Yan

SINGAPORE (ICIS)–Asia butadiene (BD) prices may bottom out in January and are likely to recover after the Chinese New Year holidays in February as traders and end-users re-stock ahead of the heavy cracker shutdown schedule in the second quarter, industry players said.

However, the BD price increases will most likely be moderate and gradual in the first quarter of 2014 rather than its usual trademark of sharp significant spikes because of the sluggish downstream styrene butadiene rubber market, industry players said.

The BD market is known for its volatility and unpredictability, but market players, including both buyers and sellers are of the opinion that price increases are likely to be moderate and gradual, at least, for the first quarter of 2014.

“The first quarter of 2014 will be different from the previous year, as prices are expected to increase gradually this year compared with 2013 because Chinese traders are more cautious this year and there will be less speculative activities because of tight credit in China, ” a Chinese buyer said.

“We expect January to be quiet prior to the Chinese New Year and demand for BD to pick up in mid-February after the festive holidays,” a Chinese trader said.

Chinese New Year falls on 31 January in 2014 and China will be closed for one week for the festive holidays, although some factories may shut for up to two weeks till mid-February, industry players said.

BD spot prices averaged $1,485/tonne (€1,084/tonne) CFR (cost and freight) northeast (NE) Asia on 20 December 2013, down by $235/tonne or 14% from 25 October,  when prices were at $1,720/tonne CFR NE Asia, ICIS data showed.

“We expect BD prices to rise gradually to around $1,500/tonne CFR NE Asia after Chinese New Year in mid-February and to around $1,550/tonne CFR NE Asia in March,” a downstream SBR producer said.

In 2013, prices surged from $1,650/tonne CFR NE Asia on 4 January to $2,050/tonne CFR NE Asia on 1 March before plunging to $1,400/tonne CFR NE Asia on 5 April, ICIS data showed.

However, this volatility is not expected to be repeated in the first quarter of 2014 because  apart from the expected reduction in speculative activities, the Asian SBR makers cannot support any sharp price spikes because of poor margins in the derivative SBR market.

The downstream SBR producers in Asia have been hard-pressed by weak market conditions and have found it tough going because of the increasingly stiff competition from European SBR makers and abundant SBR supply in Asia.

European SBR suppliers have been diverting their surplus stocks to Asia because of weak demand in recession-hit Europe, which have depressed SBR prices in Asia.

SBR supply has also outstripped demand in Asia, exerting downward pressure on SBR prices and squeezing the margins of SBR makers in return.

This SBR supply overhang will be further aggravated in 2014 as 470,000 tonnes of new SBR capacities are expected to enter the market in China and India this year,  industry players said.

China’s Zhejiang Weitai Rubber’s 100,000 tonne/year emulsion SBR (E-SBR) plant is expected to start up in April or May in 2014 while Liaoning Beifang Dynasol Synthetic Rubber may start up its new solution 100,000 tonne/year SBR (S-SBR) plant in September 2014, according to Chemease, an ICIS service in China.

In India, Reliance Industries (RIL) is expected to start up its new 150,000 tonne/year SBR plant in the second quarter of 2014 following the inauguration of another new 120,000 tonne/year SBR plant by   Indian Synthetic Rubber Ltd (ISRL) on 29 November 2013.

SBR producers are the major consumers of BD.  SBR is used in the production of tyres for the automotive industry.

Despite the subdued downstream SBR market, BD producers are optimistic that BD prices may rise higher to above $1,600/tonne CFR NE Asia in March because supply will be limited from cracker turnarounds during this period.

“We expect BD prices to increase steadily after the Chinese New Year holidays  because supply will be limited from cracker turnarounds,” a South Korean BD supplier said.

Several crackers and BD extraction units are scheduled to shut for maintenance from February to June 2014, including CPC of Taiwan, Keiyo Ethylene of Japan, Shanghai SECCO of China, Haldia Petrochemicals of India, Lotte Chemical of South Korea  and PTT Global Chemical of Thailand.

($1 = €0.73)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections