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Butadiene Market Standoff

Business, Economics, Markets, Olefins
By John Richardson on 30-Mar-2012

By Malini Hariharan

Just days after a recovery in butadiene prices, downstream synthetic rubber producers are once again threatening to cut production as weak demand has pushed them in to a tight corner.

Asian major Korea Kumho Petrochemical is looking at trimming the operating rate at its 210,000 tonnes/year polybutadiene rubber (BR) plant to 85%, and also extending the shutdown of a second plant.

BR producers need to take drastic measures. Butadiene prices rose by $150/tonne last week, while BR prices dropped by $50/tonne. The spread between the two is barely $250/tonne, well below the $600-700/tonne that BR producers need to cover costs, writes Helen Yan on ICIS news.

Any effort to raise BR prices has encountered stiff resistance as an uncertain economic climate keeps demand quite weak. And the correction in crude oil prices is likely to keep buyers on the sidelines this week.

Meanwhile, butadiene supply is expected to remain tight as a result of maintenance shutdowns and outages. Additionally, some crackers in Northeast Asia are running at reduced rates because of poor economics.

This is supporting producers’ efforts to raise prices. But unless BR producers pass on these costs hikes, another price correction seems inevitable.