OUTLOOK ’15: Asia BD prices to rebound on output cuts, Jan demand

By Helen Yan

SINGAPORE (ICIS)–Asia butadiene (BD) spot prices have bottomed out and are expected to soon rebound because of production cutbacks and increased buying interest, according to market sources.

“BD prices have bottomed out and we expect prices to rise to more than $1,000/tonne in January,” a trader said.

BD spot prices averaged $950/tonne CFR (cost and freight) northeast (NE) Asia on 19 December, down by about 10% since 14 November, ICIS data showed.

BD spot prices have been on the downstrend due to the plunge in the crude and naphtha prices and weak macroeconomic conditions, market sources said.

Crude oil prices have almost halved since June, with Brent crude oil prices dipping below $60/bbl, and US WTI crude oil prices slipping below $55/bbl recently.

“We are starting to see more Chinese buying interest now but the BD price rebound will not be sharp or significant due to the uncertainty of the upstream crude oil price,” another trader said.

To shore up the BD price, several cracker operators plan to reduce their operating rates and use more liquefied petroleum gas (LPG) instead of naphtha for 10% of their total feed, market sources said.

LPG yields less BD compared with naphtha.

“BD supply will be tightened when the cracker operators start to cut their operating rates or switch to using more LPG instead of naphtha,” a trader said.

Major cracker operators including Taiwan’s Formosa Petrochemical Corp (FPCC), South Korea’s Yeochun NCC (YNCC) and China’s Shanghai SECCO

Petrochemical plan to cut their operating rates or switch to using more LPG in January, market sources said.

Likely to add more upward pressure on the BD price is the anticipated pick-up in demand in the second half of January as customers are expected to re-stock their inventories ahead of the Lunar New Year holidays, market sources said.

“We expect demand to increase in  second-half January on re-stocking activities before the market players leave for the Lunar New Year holidays in February,” another trader said.

Lunar New Year starts on 19 February next year and are celebrated in China, South Korea, Taiwan and several countries in southeast Asia.

Market players in the key Chinese market are expected to wind down their activities and head for their hometowns in early February for the week-long holidays.

The Chinese market is closed from 19-25 February 2014 for the festive holidays.

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