Influx of deep-sea cargoes to weigh on Asian BD market in the near term

Author: Helen Yan

2020/06/05

SINGAPORE (ICIS)--A supply glut caused by an influx of deep-sea butadiene (BD) supply from Europe and the US is expected to weigh on the Asian BD market in the near term.

About 150,000 tonnes of BD from Europe and the US have been heading to Asia since early this year, with large volumes arriving in the second quarter and more expected to arrive in July and August.

“There are also available regional cargoes from southeast Asia and Japan for July delivery, on top of the deep-sea cargoes coming, so buyers are in no rush to commit,” a trader said.

“But the arbitrage window may be closing soon as demand starts to pick up in Europe and the US,” another trader said.

The influx of deep-sea BD from the EU and the US to Asia was triggered by fallout from the coronavirus pandemic, which has battered the global automotive industry, disrupted supply, and crippled demand.

BD is a feedstock for synthetic rubber (SR), including styrene butadiene rubber (SBR) and polybutadiene rubber (PBR), which are mainly used as raw materials in the production of tyres for the automotive industry.

The shortfall of BD in Asia, due to the planned and unplanned outages, also prompted EU and US suppliers and traders to channel their surplus spot material to Asia.

Taiwan’s Formosa Petrochemical Corp (FPCC) is shutting down its No 3 cracker and 176,000 tonne/year BD extraction unit for a 45-day maintenance shutdown in mid-August.

A major cracker operator in South Korea, Lotte Chemical, is also expected to extend the shutdown of its cracker and 150,000 tonne/year BD unit till October, after it shut in early March due to a fire.

In southeast Asia, Malaysia’s Pengerang Refining and Petrochemical’s (PRefChem)’s 185,000 tonne/year BD unit has been offline since mid-March following a fire at the complex.

In the meantime, Chinese spot appetite has declined due to the softening local downstream synthetic rubber market.

“Buyers are holding back as the Chinese domestic market is softening, and they are also cautious due to the rising US-China tensions,” a trader said.

However, Asian BD producers were unwilling to unload BD below $400/tonne CFR (cost and freight) northeast (NE) Asia for spot shipments, given that their margins have been wiped out by the recent surge in the feedstock naphtha price.

On 29 May, ICIS BD spot price averaged $365/tonne CFR NE Asia, while the naphtha price was at $345/tonne CFR Japan at noon on 5 June, ICIS data showed.

“There are no margins. With naphtha nearly the same price as BD, it is not sustainable for BD to remain below $400,” a BD supplier said.

Focus article by Helen Yan

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