Asia BD rebounds; weak demand to cap further price gains

Helen Yan

03-Sep-2014

Focus story by Helen Yan

Asia BD reboundsSINGAPORE (ICIS)–Spot butadiene (BD) prices in Asia have rebounded and may continue rising in the near term following sharp falls for four straight weeks, but gains will be capped by weak demand for derivative synthetic rubber amid low natural rubber (NR) prices, market sources said on Wednesday.

On 29 August, BD was assessed at an average of $1,430/tonne CFR (cost and freight) northeast (NE) Asia, up by $75/tonne from the previous week, according to ICIS data.

In the previous four weeks, BD prices have shed $275/tonne or about 17%, given a regional supply glut, the data showed.

NR and synthetic rubbers like polybutdiene rubber (PBR) – a major downstream for BD – compete as raw material for the production of tyres for the automotive industry.

On 2 September, SMR 20 tyre grade NR closed at $1,640/tonne FOB (free on board) Malaysia at the Malaysia Rubber Exchange, down by $60/tonne from 1 August, and 30% lower since the start of the year.

“If NR prices remain weak, it will be difficult for the synthetic rubber prices to go up and this means that it will be difficult to support higher BD prices, so the BD price uptrend may not be sustainable,” a downstream synthetic rubber producer said.

NR prices are likely to remain weak, with Thailand – the world’s biggest producer of the material – aiming to sell 200,000 tonnes of its stockpile to the spot market.

PBR prices have likewise weakened. On 28 August, PBR stood at an average of $2,050/tonne CFR NE Asia, down $50/tonne from mid-August, according to ICIS data.

Traders in Asia are scrambling for spot BD cargoes, anticipating that prices will increase further through to October. Spot availability of the product may turn scarce as a number of regional crackers are due to undergo turnarounds, market sources said.

Among cracker operators with scheduled  maintenance at their facilities are LG Chem in South Korea, Shell in Singapore, PTT Global Chemical (PTTGC) in Thailand, and Mitsui Chemicals in Japan.

A window for arbitrage trade may open up, given the weaker BD prices in Europe.

A widened gap in prices between Asia and these regions, would provide opportunities for traders to bring in lower-priced deep-sea cargoes and sell them at higher prices in Asia.

With European spot prices currently  at $1,100-1,200/tonne FOB (free on board) Europe and if Asia prices were to rise to above $1,600/tonne CFR NE Asia, there would be margins for traders, given freight costs of $300-400/tonne from Europe to Asia, traders said.

The prospects of the arbitrage window opening up has also attracted strong bids from traders for sales tenders issued by regional producers in Southeast Asia.

September BD contract prices in Europe were settled lower at  €955/tonne, down by  €20/tonne from August, while in the US, September contracts were settled 56 US cents/lb, down by 4 US cents/lb.

“The BD prices in Europe and the US are weak and this may spur traders to scramble for the BD spot available in Asia and push up the BD spot price in Asia to above $1,600/tonne CFR NE Asia or higher, given the weak BD prices in Europe and the US,” a trader said.

Another downstream synthetic rubber producer said: “There are limitations for Asia BD price to continue to go up to above $1,600/tonne CFR NE Asia when fundamental end-user demand is weak.”

It remains to be seen whether the BD price uptrend may be sustainable, given the weak NR prices, which will weigh on demand for synthetic rubber, a trader added.

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

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