Europe BD market firm but concerns heighten over weak Asia

Nel Weddle

07-Mar-2014

By Nel Weddle

LONDON (ICIS)–The European butadiene (BD) market is firm on the back of ongoing production constraints and good demand from domestic and US consumers, but there are worries regarding the longer-term sustainability of pricing given the continued weakness being seen in Asia, sources said on Friday.

Asia, normally seen as the main driver for the health of the global BD industry, has been fairly soft since the beginning of the year. Expectations of a recovery in demand after the Chinese Lunar New Year fell flat and hopes that demand would at least pick up at the start of the cracker turnaround slate have so far failed to materialise.

Concerns over the Asia market were widely said to have moderated the recent contract price increase – the March contract price settled up by €80/tonne to €1,025/tonne.

“It surprises me and it worries me,” a producer said.

“The tendency would be for recovery with a big cracker turnaround season and following the Chinese New Year, but it doesn’t seem to be there,” it added.

Instead spot prices in Asia have fallen further to the $1,300s/tonne CFR (cost and freight) basis as supply outweighs demand. Given a typical Europe-Asia freight rate of about $350-400/tonne, this would put a free on board (FOB) northwest Europe (NWE) netback well below current FOB export indications in the $1,500s/tonne, with $1,600/tonne also talked.

“I am happy with my situation,” a second producer said, “but I am worried about Asia. In the long run it needs to be the driver. It’s tight in Europe now, but there will be a point when it won’t be.”

Demand from US consumers afflicted by supply problems, while helping to tighten European supply and raise spot prices, has also helped to alleviate some of the oversupply in Asia. Up to five cargoes have been heard fixed from Asia to the US since the start of 2014.

Some expect the weak Asia market to start to weigh on Europe sooner rather than later.

“US demand will calm down,” a consumer said. “Supply issues have been resolved and there are the quantities exported from Europe and Asia.”

It added that natural rubber inventory in China’s main bonded warehouse was reported by Reuters up by 11% in February versus January, “reaching again the ‘warning’ 340,000-tonne level seen in May 2013.”

Because of this, it felt that derivative demand in Asia was unlikely to recover any time soon, thereby capping prices on the global market, although supply in Europe will continue to be determined by ethylene performance and its impact on cracker operating rates and feedstock slates.

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