Asia BD may rise further on tight supply; soft NR to cap gains

Focus story by Helen Yan

SINGAPORE (ICIS)–Spot butadiene (BD) prices in Asia may still have room to increase in the near term, supported by firm demand and limited availability of spot cargoes, market sources said on Friday.

But the upward momentum may be tempered by soft prices of natural rubber (NR), they said.

On 6 June, BD was assessed at an average of $1,350/tonne CFR (cost and freight) NE (northeast) Asia, up by $120/tonne from 23 May, according to ICIS data.

BD-derivative synthetic rubbers – including styrene butadiene rubber (SBR) and polybutadiene rubber (BR) – and NR are raw materials in the production of tyres for the automotive industry.

Over the past two weeks, SMR 20 tyre grade NR prices averaged $1,670/tonne FOB Malaysia at the Malaysian Rubber Exchange, about $300/tonne lower than the current offers for non-oil grade 1502 SBR, market sources said.

NR and SBR can substitute each other as raw material for tyre production, with their prices having a tendency to move in the same direction.

“Soft NR prices will make it difficult for SBR prices to go higher, and this will cap the BD price uptrend. BD prices are now near peak and the BD price uptrend will be short-term,” an  SBR producer said.

“If a tyre company has the flexibility to switch to using more NR, the tyre maker will change their formulations as it will not wish to pay premium prices for SBR,” a major China-based tyre maker said.

Tyre manufacturers in emerging countries have more flexibility to substitute SBR with NR, market sources said.

BD spot prices have increased recently as supply has been tighter than expected, with a number of major South Korean and Taiwanese cracker operators raising the proportion of liquefied petroleum gas (LPG) as feedstock for production given the high cost of naphtha.

Feeding LPG into crackers yields less BD.

“Customers in South Korea and Taiwan are looking for July [BD]  shipments and demand is still strong,” a trader said.

Meanwhile, new BD capacities in China should ease the tight supply in northeast Asia, and thus temper BD’s price uptrend, market sources said.

Shanghai SECCO Petrochemical is expected to start up a new 90,000 tonne/year BD unit in Shanghai in July, while Fujian Refining &Petrochemicals (FREP) started commercial production at its new 60,000 tonne/year BD unit in Quanzhou, Fujian province last month.

“We have no spot interest for BD and do not need to import BD as we will shut down our SBR plant in mid-June for maintenance,” a major Chinese buyer said. The same Chinese buyer runs a 180,000 tonne/year SBR plant in China.

The average operating rate of SBR producers in China is 69% for this week, according to Chemease, an ICIS service in China.

Regional BD producers, however, expect their product prices to continue rising above $1,400/tonne CFR NE Asia, backed by strong demand for July shipments from Taiwan and South Korea.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections