OUTLOOK ’17: US BD to continue slow growth amid ample supply

HOUSTON (ICIS)–US butadiene (BD) market participants are expecting much of 2017 to be similar to 2016, with supply ample but not overly long and with demand continuing to expand slightly.

Domestic production of BD should remain strong as ethylene demand drives olefins producers to operate crackers at high rates, resulting in greater output of Crude C4 (CC4) from which BD can be extracted.

Production costs – particularly for feedstocks – are expected to rise in 2017, but if crude oil prices remain low, crackers could continue to use more propane and butane, as high co-product prices incentivise olefins producers to use a heavier feedslate to make up for the cost of producing ethylene.

Although BD production is set to increase as a result of new ethylene capacity coming online with the start-up of four new crackers and the restart of an idled unit, market participants are not anticipating a significant impact on supply until around the fourth quarter.

Most of that additional capacity is coming online in mid-2017 and the second half of the year – if there are no further delays. Additionally, there may be issues related to starting up a large plant, so it may take some time before those units are operating consistently and are producing on-spec material.

The BD supply length stemming from increased production is expected to be partially offset by some outages. Several crackers are expected to conduct turnarounds in 2017, and maintenance is scheduled on at least two CC4 units for the spring and one for the fall. While market participants will likely build sufficient inventories ahead of these turnarounds, unexpected outages could result in some short-term tightness in supply.

Additionally, the market will continue to monitor fundamentals in other regions, which can impact US BD pricing and domestic availability.

For much of 2016, planned and unexpected outages in Asia had led to high prices there, which led to a global uptrend as prices in other regions rose to stay aligned. While BD exports from the US seldom occur prior, the wide price gap with Asia enabled traders to take advantage of the arbitrage and fix several US BD cargoes for export to Asia.

US market participants are expecting the volatility in Asia to persist in 2017, partially because business there is primarily conducted on spot basis. Nevertheless, sources anticipate that the US region will see exports occur more frequently as long as US supply is ample and Asia prices remain high.

From a demand standpoint, BD consumption is expected to continue to grow at a slow-but-steady pace, with some market participants and analysts pegging an average annual growth rate of around 2-3%.

In the main downstream synthetic rubber market, several factors – including lower miles driven, technological advances, as well as social and lifestyle changes – have led to longer replacement cycles of when consumers change their tyres.

Still, the Rubber Manufacturers Association (RMA) forecasted that tyre shipments in 2016 will show a slight 0.3% gain year on year, and this trend could continue in 2017.

Additionally, there are a number of new tyre plants that are starting up in 2016 and 2017, which means higher consumption of rubber, as well as upstream BD.

While some BD market participants are hoping to see 50% of consumption from the new tyre plants be for domestically made product, others are sceptical that the US market will see much, if any, significant increase in domestic demand.

BD consumption levels should also see some boost from other derivatives such as acrylonitrile-butadiene-styrene (ABS) and nylon 6,6, particularly amid strong demand for engineering plastics in cars.

The market could also see some increased demand from the downstream synthetic butadiene latex (SBL) market as well.

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