OUTLOOK’ 19: Europe BD players brace for uncertain year, turnarounds could mitigate trade tensions

Source: ICIS News

2019/01/10

LONDON (ICIS)--Uncertainty has already become the byword of the global petrochemicals market in 2019, much like “cautious optimism” rang out from every European corner in the last couple of years when low oil boosted the region's fortunes.

VariousNot one European butadiene (BD) market player canvassed over recent weeks has failed to mention the word in relation to their expectations regarding market conditions throughout 2019.

This is not surprising, since they already experienced the negative effects of the US-China trade war on demand levels for both Europe’s BD and BD derivatives themselves during the latter part of 2018.

Uncertainty on demand leads to uncertainty over the supply as well as over demand balances and, subsequently, over pricing. Players are predicting a challenging year ahead.

Sentiment had been gradually getting more bearish as 2018 drew to a close.

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The year-end is typically a period of lower demand among domestic consumers, but usually there is at least the prospect of heightened demand for export in December from Asian buyers keen to procure volumes ahead of the Lunar New Year.

However, demand remained subdued at the end of 2018 and, a couple of weeks into 2019, there are no signs of a change in sentiment.

“We are already talking about March deliveries for Asia, yet no signs of improvement,” a source said.

HEAVY TURNAROUND SCHEDULE However, European BD supplies are likely to be constrained at least during the first half of 2019, either as a function of the fairly heavy cracker turnaround schedule limiting crude C4 (CC4) feedstock or as some BD units will be offline too.

European BD is structurally long and, for now at least, most sources expect spot availability to be very much reduced during the second quarter of 2019 when the bulk of the turnarounds are under way.

“We can expect to see less spot volume available in April, May and June, with both contract and spot prices up,” a second source said.

But unless there is a favourable outcome following the US-China trade talks, the European balance may not be as tight as some expect: the turnarounds will allow suppliers to be restrictive on volumes, and consequently on prices.

However, some players caution against European prices out of line with those on the global market should Asia in particular remain sluggish.

“Consumption in Europe is OK, and there are expansions too, but some of that volume needs to be exported as well,” a third source said.

TIGHT H1 TURNS LONG IN H2 Players expect a longer market during the second half (H2) of 2019. While there will be the autumn maintenance slate to contend with, this will be mitigated by the planned shutdown of a major consuming unit for five days from September.

“[This will be where] the demand side decreases more than the supply side, leaving some extra spot material on the table and consequently leading to lower spot prices,” the second source said.

Scheduled TAR 2019*

Company Location Timing Dow Boehlen May-June INEOS Dormagen March-April Shell Moerdijk April-June BASF Antwerp May-June Evonik Marl Aug-Oct BASF Ludwigshafen 1 Autumn REPSOL Tarragona Autumn SABIC Geleen 4 Sep-Oct

*according to market sources, may not be confirmed by the company

From a longer-term point of view, and putting the US-China tariff war uncertainty aside, sources sad there will be greater supply ex US and China moving through 2019 and into 2020, potentially impacting on the need for European BD.

In the US, increased BD is expected from new cracker start-ups which, even coming from ethane-based crackers, which produce the least CC4, will make for a more balanced market in the region going forward.

The US’ traditional position has been tight on BD supply amid limitations on CC4 and structural BD and CC4 exports destined to the US have been decreasing as new crackers started to come online.

Players expect less requirement for European volumes, but at the same time this could mean more opportunity for exports which could displace European volumes.

So far, the volumes exported to Asia have been limited.

In China, domestic capacity will grow. According to ICIS data, China will post a  10% increase in capacity over 2019, around 370,000 tonnes of BD.

There were some exports in July and August 2018 and, while there are the usual questions about start-up delays or low operating rates, among others, several European sources do expect exports from China to grow.

At least one European domestic BD consumer is bearing the growth in other areas in mind.

"We are planning to shorten our contracts [volumes] from 2020 in anticipation of improving availability," it said.

For 2019 though, the focus is on managing the supply constraints amid a great deal of uncertainty over downstream demand.

BD is a key feedstock for styrene butadiene rubber (SBR), which is used in tyre manufacturing.

Picture source: Voisin/Phanie/REX/Shutterstock

Focus article by Nel Weddle 

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