Initial US Nov BD contracts nominated at 11 cent/lb hike

Tracy Dang

24-Oct-2016

Shell produces butadiene at Deer Park, Texas. (Image source: Shell Chemicals)
Market players are shocked when prices jump from a forecast of 2-5 cents/lb to 8-12 cents/lb in a week. “This is not a reasonable reaction to this market situation,” one source says. Above, Shell produces butadiene at Deer Park, Texas. (Image source: Shell Chemicals)

Focus story by Tracy Dang

HOUSTON (ICIS)–US butadiene (BD) contracts for November were nominated on Monday by one producer at a greater-than-expected increase of 11 cents/lb, shocking many participants in the market.

Several buyers confirmed the nomination, which would put November contracts for that producer at 57 cents/lb ($1,257/tonne), up from its October pricing of 46 cents/lb, if accepted by buyers.

However, participants were surprised that the initial nomination called for such a “big jump”.

“Wow,” was the reaction of several sources. “That seems high.”

November contracts were expected to rise by varying amounts of 2-8 cents/lb, with many pegging an overall increase of around 6 cents/lb.

“Plus 11 [cents/lb] seems ambitious,” a source said.

Participants acknowledged that prices remain high in Asia, where supply has been tight amid scheduled turnarounds, unplanned outages, as well as a force majeure at Shell’s cracker facility in Singapore. ICIS assessed BD spot prices on Friday at $1,550-1,600/tonne NE Asia.

“We are way too low relative to Asia,” a buyer said.

Still, sources said that a US contract increase of 11 cents/lb is “crazy”, given that Asia prices are slipping.

“That may have worked a few weeks ago if Asia is still $1,600[/tonne], but it seems to be falling now,” a source said.

US BD contract values have generally risen since the higher-than-expected settlement for April pricing. Limited Asian supply has pushed up global BD prices, and US exports and production issues have tightened the domestic market. Participants had been hoping that the upward pressure on US prices would ease by October or November as global supply improves.

However, Shell’s cracker site in Singapore had another unexpected production issue in late September, and the producer declared force majeure on its raw materials. This led to another price spike in Asia – and in turn, the global market.

The open arbitrage enabled traders to fix another large export from the US to Asia.

The global BD price uptrend, as well as tightening domestic supply following the export fixture, led to early expectations that US November contract prices would increase slightly from October.

However, US BD spot bids and offers jumped last week, resulting in November contract expectations of a larger-than-expected increase of several cents/lb.

Still, participants said they had not expected nominations to emerge that high.

“We go from a forecast of 2-5 [cents/lb] to 8-12 [cents/lb] in a matter of a week,” a source said. “Just because of a few cargoes to Asia, and the Asian market is out of control? This is not a reasonable reaction to this market situation.”

For now, participants are scepical that the targeted 11 cent/lb increase will hold.

The market awaits for individual nominations from three other US BD producers.

US BD Contracts

November Nomination

October Settlement

Producer 1

57 cents/lb

46 cents/lb

Producer 2

To be announced

46 cents/lb

Producer 3

To be announced

46 cents/lb

Producer 4

To be announced

46 cents/lb*

Weighted Average

N/A

46 cents/lb


*Aggregated fees will not be added to the announced price. Other component add-ons are not disclosed.

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

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INSET IMAGE: Giant spherical tanks contain butadiene under pressure. (Jacques Boyer/Roger Viollet/REX/Shutterstock)

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