Shortage of BDO amid strong demand leaves US players with tough choices

Author: Antoinette Smith

2021/04/07

HOUSTON (ICIS)--After US Q2 butanediol (BDO) contracts settled at a record-high increase, buyers are left speculating on when critically tight supply will ease.

After months of insufficient supply, improvement seemed on the horizon as LyondellBasell raised its sales allocations at the end of March.

However, two days later, a customer letter revised these allocations lower as the result of an operational upset at a third-party supplier.

"People are getting weary and irritated," said a buyer, of their company's own customers.

The persistent shortage of BDO has forced buyers to decrease run rates - "lower than we'd like," according to one - and caused downstream inventories to fall amid strong demand.

Buyers put up little resistance to Q2 price nominations, with one saying prices had been suppressed for some time.

However, "we will try to claw back those increases once we're in a position to do so," the buyer said.

With only three US producers remaining after the permanent closure of Shandong Ruyi in December 2020, even one production issue quickly tips supply out of balance.

"As long as anyone is on force majeure, nobody can stabilise," said another buyer.

"There are a lot of handcuffs with the supply I'm getting," the buyer said, while describing the difficult choices in allocating production to their own customers.

US producers said they have been overwhelmed with enquiries, both from regular customers as well as those in India, and other regions seeking material exported from the US due to shortages in their own regions.

The US producers said their companies' obligations are first to contracted customers and their loyal customer base.

In China, BDO supply has grown in recent weeks as domestic producers take advantage of favourable margins and ramp up output to well above normal levels.

Even so, global BDO supply remains very tight - pushing Asia April BDO contracts to more than triple since August 2020.

As such, imports into the US are not a workable option due to the globally tight supply and high prices, as well as elevated freight rates and vessel shortages.

DEMAND RAGES ON
After a delayed response to the US economic recovery, demand for BDO and derivatives rebounded strongly in Q4 2020.

That demand has continued into Q2 2021, with at least one buyer saying its BDO requirements are around pre-pandemic levels from 2019.

Strong demand also led some buyers to offer to pay even more than the sizeable increases, to secure additional volumes of BDO during Q2.

Despite potential headwinds in the key automotive and construction sectors, pent-up demand from the current BDO shortage could extend the strong demand into Q3.

But if the shortage continues for an extended period, downstream buyers may consider alternatives such as bio-based polyols rather than petrochemical-sourced ones.

BDO is a chemical intermediate used in the production of polymers, solvents and fine chemicals.

US BDO producers include Ashland, BASF and LyondellBasell.

Focus article by Antoinette Smith

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