US June BD rises 5 cents/lb amid global tightness

Focus article by Tracy Dang

HOUSTON (ICIS)–US butadiene (BD) contracts for June have fully settled at increases of 5 cents/lb, market sources confirmed on Thursday, tracking rising or already-high prices in other regions amid globally tight supply.

The overall increase separately puts June contracts for one producer at 32 cents/lb, two producers at 35 cents/lb and one producer at 41 cents/lb.

As a result, the ICIS weighted average for June contracts is 34.94 cents/lb ($770/tonne), up from 29.94 cents/lb in May. The assessment does not include premiums, which are confidential and based on individual contract terms.

Some players said that the June contract settlement was expected and in line with recent developments in not only the domestic market but also the global market.

The overall increase was mostly attributed to globally tight supply, with an unusually high number of planned and unplanned cracker outages and several declarations of force majeure in Europe, a net exporter of BD that typically sends contract and occasional spot volumes to the US.

In the domestic market, supply availability became considerably shorter with the export of 7,000 tonnes to Asia in late April.

“I would say [the overall increase is because of] largely reduced supply,” a buyer said. “I don’t think demand is any different. I think we’re going to be tight for a bit.”

Nevertheless, demand had returned to typical levels as a major consumer restarted its downstream plant following an unexpected outage and as buyers were said to be pulling higher volumes on contractual volumes, leading to interest in the spot market.

“I was getting a lot of spot inquiries,” a trader said. “A few guys here and there needs [BD].”

The heightened interest caused spot bids to shoot up by 6 cents/lb for May material and 10 cents/lb for June material in a little over a week, setting the tone that June contract prices could increase by more than just an uptick.

Some players felt that the June contract settlement puts the US region more in line with overall pricing worldwide.

Asia spot prices were fluctuating but remained very high at around $1,100/tonne.

European June BD contracts settled earlier on Thursday at €685/tonne.

“I do agree we have been cheap relative to other regions,” a market source said, “so this is a correction.”

Another source said: “Europe is tight. Asia is stable. If they do not increase the [June contract price], when then? We are the lowest BD priced in the globe.”

Still, many players felt that a hike of 5 cent/lb was “way too high” and that an increase of 3 cents/lb was more in line.

“Whenever we export material, there is a drastic rise in prices 30-60 days later,” a market source said. “The US can’t export material. The material is needed here, and exporting only benefits the producers. They will export to help drive prices higher. I just get so mad when the producers say they need to export, then all of a sudden, we are tight.”

Others said that the overall increase further opened the door for arbitrage opportunities into the US, particularly for the main downstream market of synthetic rubber.

“North American BD producers appear to be looking at the overall global BD pricing and protecting themselves from imported BD but are again overlooking the derivative import pricing,” a buyer said. “I can find nothing in the BD upstream market that drove the 5 cent/lb price increase, so I believe it was based off of pure supply and demand economics.”

The source added that moves like the June contract increase will continue to place North American rubber producers at a disadvantage to import pricing.

Major US BD producers include ExxonMobil, LyondellBasell, Shell Chemical and TPC Group.

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