AFPM ’19: US BD supply healthy, outpacing sluggish demand

HOUSTON (ICIS)–US butadiene (BD) supply levels are expected to remain healthy in 2019, outpacing demand amid a weak outlook for the downstream styrene butadiene rubber (SBR) sector.

Ample supply  and sluggish demand heading into this year’s International Petrochemical Conference (IPC) is in contrast to market conditions in 2018, when tight supply of BD and feedstock crude C4 (CC4) ultimately drove a 32 cent/lb ($705/tonne) spike in contract price values during the first half of the year.

US BD supply improved in late 2018 as cracker operators increased feedstock usage of propane and butane, which yield more CC4 than ethane, and BD contract values fell.

The cracking of heavier natural gas liquids (NGLs) remains supported in order to limit ethylene amid oversupply.

As crude prices linger between $50-60/bbl, down relative to last year, heavier NGLs will continue to be more competitive than ethane as higher co-product credits will lead to better margins.

In addition to improved CC4 availability from existing crackers, several new crackers are starting production in 2019.

Additional BD production as a result of cracker start-ups will shift the market from a historical position of tightness.

Lengthening BD supply should keep prices lower after 2018’s price spike, potentially creating opportunities for growth in derivative markets and for exports.

The US has a light cracker maintenance schedule this year, but it is a heavier year for turnarounds in Europe and Asia.

This could impact US supply if demand rises in export markets, but buyers in those regions are said to be well covered for now.

The demand outlook is bleak, weighed down by weakness in the SBR sector.

SBR demand softened globally as the Asia economic outlook grew pessimistic and China automotive sector slumped.

Global BD markets await demand signals from Asia, but as of the first quarter, downstream tyre factors have reduced operating rates on declining vehicle sales and buyers are said to be covered until April.

US tyre companies anticipate flat-to-slight growth in light vehicles this year, with greater growth in truck tyres.

US March BD contracts settled at 49.25 cents/lb, flat from February. Spot prices are slightly above contract values, although there is limited spot activity.

April price expectations are uncertain, as market participants eye a price downtrend in Asia.

Supply levels will remain comfortable, while demand will continue to be weak.

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

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 24-26 March in San Antonio, Texas.

Focus article by Amanda Hay