Europe BD: tight supply persists amid Q4 export uncertainty

08 September 2016 12:13 Source:ICIS News

FOCUS article by Nel Weddle

LONDON (ICIS)--European butadiene (BD) supply remains tight and while many expect this to persist through September and into October, uncertainties over the state of the market for the rest of the fourth quarter are building, some market sources said on Thursday.

“The market is super-tight,” a source said.

“You have to be quick to get the volumes,” a second source said, adding that there are volumes here and there but that it disappears fast.

European BD supply tightened on the back of a combination of factors which started back in the spring. Planned and unplanned BD unit and cracker outages led into the French strikes – restarts from which were not problem-free – and hampered future turnaround preparations. Meanwhile, a preference for light feedstock cracking in some areas limited crude C4 (CC4) output and then, more recently, high temperatures in Europe over the summer period placed further constraints on BD unit operating rates.

Healthy export demand has added to the situation.

“Traders have been very active for September and October,” a third source said.

A heavy turnaround schedule and more recently, G20 summit preparations in Asia, led to heightened demand and consequently local prices being pushed ever higher – Asian spot prices have increased by 17% in just one month.

However, with September volumes widely described as sold out or if available too small to justify freight on an export cargo, the race is on to secure October tonnes.

The issue then is: with the six-week or so delivery time – October loading in Europe would mean arrivals in November and beyond – getting buyers to commit to prices so far out is difficult.

“It’s a very tight market, [Asian buyers] are deperately looking for volumes H1, H2 October arrivals,” the first source said.

“But, November is more tricky. There is demand but prices are far below [current levels],” it added.

The lower pricing indications come from uncertainties over supply and demand – the latter is already under some pressure from squeezed margins particularly from the synthetic rubber sector.

But if it is getting trickier to find willing buyers, this has yet to be felt by European BD producers.

“Players are still looking for volumes up to the end of October. It's not over yet,” a fourth source said.

“I don't see any Asia slow-down, we are still getting interest from traders for October volumes,” it added.

Spot volumes for export were most recently concluded at around $800-810/tonne FOB (free on board) NWE (northwest Europe) – these were for top-up volumes, some sources said.

“Our [Asian] buyers are indeed declining offers for new deep-sea cargoes at those numbers for November arrivals,” a trader said.

Seeing the increased demand for European tonnes from Asian buyers and their willingness to pay higher prices, domestic European BD consumers have retreated largely into their contracts, having maximised volumes as far as is possible.

Most consumers canvassed said they were covered for the most part for September and were not so keen in purchasing tonnes priced at a premium to the contract price in any case.

One or two will have had a limited chance to avoid high spot numbers given their need to supplement tonnes lost through some long running supply issues. Meanwhile, one other consumer continues to look for tonnes solely in order to support its US operations.

The last domestic spot deal was fixed at €700/tonne delivered, while some offers today are heard at  €780/tonne.

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By Nel Weddle