HOUSTON (ICIS)--Demand weakness for butadiene (BD) will linger, but the changes experienced by the market are not structural in the long term, said ICIS analyst Ciaran Healey.
He made his comments in a webinar, part of a series hosted by ICIS.
Much of the BD demand weakness is closely linked to the fallout from the coronavirus, which has led to a significant drop-off in demand for automobiles, which are the main demand outlet for BD.
ICIS senior analyst James Wilson said he expects that various regions - Asia, North America, Europe - will self-balance in the long run. Cracker operators in each region will adjust their operations as needed, finding equilibrium on their own.
BD is primarily used in the manufacture of tyres, causing its demand to fall correspondingly with demand for automobiles in the wake of the coronavirus outbreak.
Lockdown measures caused a steep decline in miles driven and consequently worn-out tyres, diminishing the need for replacements.
Also, supply of BD has been plentiful, contributing to its falling prices.
BD is generally produced as a byproduct of the steam cracking process used to produce ethylene and other olefins.
Lower oil prices have encouraged flexible-feed crackers in the US to switch from ethane to heavier feedstocks such as liquified petroleum gas (LPG) and naphtha, which produce significantly larger volumes of BD than ethane cracking.
Limitations in demand for incremental BD produced by cracking feedstocks has emerged in recent weeks as one factor pushing more cracker operators to opt for ethane cracking.
Ethane will remain the favoured feedstock as oil prices rise. A reduction in the use of heavy feedstocks will produce less BD, reducing its supply.
ICIS analysts believe that the slump in BD demand will not be permanent.
As the economy opens and lockdowns ease, driving miles are likely to increase. Lingering contagion fears may push more commuters to opt for driving rather than public transportation and could cause vacationers to choose driving rather than flying to reach their destinations.
“Actually, a lot of the demand weakness is closely related to specific things that people aren't doing right now,” Healy said. “But there's no reason to assume they won't start to do those things again in the future … I don't think we're going to see negative prices for BD. Whether it ever gets back to the days when BD was priced $3,000/tonne is another conversation.”
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