Europe BD demand still below expectations but mitigated by supply constraints

LONDON (ICIS)–Demand for European butadiene (BD) remains soft but a combination of lighter feedstock slates, planned and unplanned production issues, has kept the market reasonably well balanced throughout 2019.

The question on everyone’s lips is: How long will this be able to be the case?

There are concerns that the supply and demand balance is increasingly precarious and the soft-but-steady situation seen so far in 2019 will crumble in the fourth quarter.

While few sources expect any structural improvement in demand in the remainder of 2019 due to ongoing  macroeconomic worries, trade war tensions, and so on, there will be the usual year-end inventory considerations to contend with.

However, the key factor will be the planned outage at a large BD consumer which begins at the end of this month.

1,000 TONNE/DAY UNIT
The consuming unit based in France which processes about 1,000 tonnes/day of BD will be offline until December, and even assuming a restart on time, production is expected to run at reduced rates as some new technology is being installed.

Meanwhile, the bulk of the planned BD unit and cracker turnarounds should be completed in October, leaving market players with the prospect of a fairly lengthy market.

Exports are traditionally relied upon to balance Europe’s structural length but this year volumes are down – the key Asia market having been plagued by the same uncertainties over demand levels resulting in weak pricing.

European producers tailored production to contractual demand levels, reducing exposure to the spot export market and, together with the planned and unplanned outages, that has been enough so far to maintain a reasonably steady balance on BD and allow sellers to avoid bearish price pressure.

Sources question whether they will still be able to maintain some balance in the market given the consuming outage, the completion of BD production outages, and the year-end without being forced to align more closely with potentially weaker pricing in Asia, as well as the US.

FAR OUT PRICES
Looking to Asia for some signs of an impending reversal of fortune, players do not see much. There does seem to be some buying interest for November arrivals, but committing to a price that far out is the issue.

As one trader put it: “There is interest in cargo ex-Europe, but price is the hot potato. If Asia prices hold more or less to current levels it will be ok, but if prices slide further it could be tricky.”

With the October monthly contract reference price discussions due to start on Friday, contract participants have much to discuss.

Most players appear to have shrugged off any impacts from the recent attacks in Saudi Arabia, largely as the gains on crude oil at the start of the week were not sustained and demand fundamentals have not changed.

The October contract reference price is expected to be settled next week.

Global BD prices
Click on the image to enlarge

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BD is a key feedstock for synthetic rubbers, largely styrene butadiene rubber (SBR), which is used in tyre manufacturing. BD is extracted from crude C4s.

Pictured: Tyres is a key end market for BD
Picture source: Boglarka Bodnar/EPA-EFE/Shutterstock

Focus by Nel Weddle

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