INSIGHT: Derivatives compete for US BDO volumes amid persistently snug supply

Author: Antoinette Smith

2021/11/23

HOUSTON (ICIS)--Derivative applications are exerting a significant pull on US butanediol (BDO) and in many cases providing better margins than do polyester polyols, the largest end-use for the feedstock.

Softening demand into some sectors, such as automotive, has been more than offset by others, such as pharmaceuticals.

Derivative tetrahydrofuran (THF) is in high demand particularly into pharmaceutical applications as well as polyvinyl chloride (PVC) cement.

With the pharmaceutical sector depending particularly heavily on Asian suppliers, and the dual headwinds of heightened pandemic-related demand and port congestion causing significant delays, US buyers have turned to domestic sellers to help fill the gaps.

THF also is a precursor to the largest BDO derivative by share, polytetramethylene ether glycol (PTMEG) - used to make spandex fibres - causing competition between end-uses.

But US THF supply is limited by tight feedstock BDO availability, which must be prioritised based on demand but also margins in an environment when soaring energy and logistics costs are providing additional pressures.

This presents a balancing act of meeting contractual supply and optimising margins, when the derivatives furthest down the value chain may provide the best margins.

Demand for derivative N-methylpyrrolidone (NMP) also is high, especially into lithium-ion battery production. Demand into this application should increase dramatically in the near future with mandates for electric vehicles, many of which use NMP-containing batteries.

Derivative polybutylene terephthalate (PBT) has experienced a more mixed demand picture - lower in automotive due to reduced downstream production, but continued strong demand into electrical and electronics applications.

In addition, persistent shortages of upstream acetic acid - with intermediate purified terephthalic acid (PTA) prioritised for downstream polyethylene terephthalate (PET) packaging - have dampened consumption of BDO into PBT.

SEEKING HIGHER VOLUMES
Heading into quarterly contract talks, US BDO and derivative buyers are seeking higher full-year volumes than in 2020 or 2021, despite little to indicate improving availability.

Buyers also are approaching each supplier for 100% of their needed quantities, instead of the historical trend of splitting the volumes between sellers.

The higher volumes are meant to help fill sizeable backlogs for downstream orders, as well as to increase inventories and ensure supply continuity.

In addition to existing supply constraints, planned maintenance will take place in H1 2022 in the US and in Europe, tightening global supply further.

Discussions for Q1 2022 are expected to start in mid-December, with any price increase nominations announced in the first two weeks of the month.

Throughout 2021, particularly from Q2, security of supply superseded cost, as price increases were met with little or no resistance before being fully implemented.

US BDO prices rose by 91% from Q4 2020 levels, according to ICIS data.

US prices typically loosely follow Chinese trends at a lag of one or two quarters, though volatility in Asia - related to upstream values, energy policies and more - since Q2 2021 has caused even more of a disconnect between pricing in the two regions.

DOWNSTREAM OUTLOOK
US BDO players are monitoring downstream automotive production in 2022 with cautious optimism.

The global automotive industry is still struggling to make up for pandemic-related losses, with Oxford Economics predicting that Q4 production will be down by 6.5% compared with Q4 2019.

Global vehicle production growth is not expected to return until Q3 2022, with semiconductor chip supply expected to remain tight through 2022, said Jincy Varghese, ICIS demand analyst.

While chip makers may favour consumer electronics over cars because of higher volumes and better margins, vehicle chip suppliers such as Infineon and Bosch are ramping up capacity.

US light vehicle sales fell by 22.3% in October 2021 from October 2019 levels, amid very low inventories.

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

US BDO producers include Ashland, BASF and LyondellBasell.

Insight article by Antoinette Smith

Thumbnail image shows plastic syringes filled with medicine, which can include THF. Image by Medicimage/Shutterstock.

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