Asia BD players in stand-off; sellers eye US spot market

SINGAPORE (ICIS)–Asia’s butadiene (BD) players are locked in a stand-off amid a widening gap in buying and selling ideas, with sellers considering moving more cargoes to the US market.

It is a game of “who will blink first” between Asian producers, traders and deep-sea suppliers, and their regional customers, which have retreated to the sidelines after a three-month bull run in BD prices, market sources said.

“I am hearing buying indications at as low as $2,300/tonne CFR [cost and freight] NE [northeast] Asia, which shows that Asian buyers are not keen to import BD while Asian suppliers are targeting the US spot market,” a trader said.

On 24 February, BD spot prices declined by $50-100/tonne week on week to an average of $2,900/tonne CFR (cost and freight) northeast (NE) Asia, ICIS data showed.

Expectations of further declines in BD prices prompted the downstream synthetic rubber (SR) makers to retreat to the sidelines.

BD is a raw material used in the production of SR, which goes into tyres for the automotive industry.

In the key China market, domestic BD prices have likewise tumbled recently due to an oversupply amid falling SR prices.

BD prices in east China fell to Chinese yuan (CNY) 22,500/tonne DEL (delivered) on 27 February, down by about CNY4,000/tonne from 10 February.

“Asia BD spot prices had climbed up too fast and too sharply and it is time for a correction as the downstream SR prices are weakening and our margins are falling into negative territory,” a downstream SR producer said.

Regional BD prices more than doubled from 11 November 2016 to an average of $3,000/tonne CFR NE Asia on 10 February, largely driven up by strong Chinese appetite for spot cargoes, according to ICIS data.

“The Chinese overbought BD prior to the Lunar New Year and the BD prices in China are now falling quickly,” the downstream SR producer said.

The Lunar New Year, which was on 28 January 2017, was celebrated in most parts of northeast and southeast Asia, with the Chinese market closed from 27 January to 2 February for the festivities.

In the past two weeks, BD prices in Asia have weakened with the retreat of buyers from the spot market, according to ICIS data.

“We are covered for March and there is no pressure on us to procure any additional spot volumes, we are not hungry,” a major Asian downstream synthetic rubber producer said.

Traders and suppliers in the region, in turn, have decided to ship out their surplus volumes to the US market, which is in tight supply amid cracker shutdowns and plant issues.

“If the US market stays strong, we are looking at another chance to export another butadiene cargo to the US,” a South Korean producer said.

South Korean producers were heard to have sold two BD spot parcels to traders, with a combined volume of 5,500 tonnes at $3,000/tonne FOB (free on board) Korea, for shipment to the US in March.

At that price, however, the deals will not generate margins for the traders since the freight cost from Asia to the US is about $300/tonne, market players said.

“It is a bit risky if the traders are taking position and shipping out Korea-origin product to the US in March as the BD spot price in the US has to jump up to at least $3,300/tonne CIF USG in April,” another trader said.

Currently, US BD spot prices are at 140.00-145.00 cents/lb CIF USG, equivalent to $3,080-3,190/tonne CIF USG.

Apart from South Korean BD producers Yeochun NCC (YNCC) and Lotte Chemical, other producers – including Taiwan’s Formosa Petrochemical Co (FPCC) and Brazil’s Braskem – are also targeting the US spot market, where demand is strong amid tight supply.

“We are getting enquiries from US customers at $3,000/tonne for BD and we may ship some spot volumes to the US rather than ship them to Asia as the US is much nearer to Brazil,” a source at Braskem said.

In Asia, other downstream synthetic rubber (SR) and acrylonitrile butadiene rubber (ABS) producers are mulling cutting production or keep reduced run rates at plants to limit their consumption of high-priced BD, market sources said.

In Taiwan, TSRC Corp plans to implement substantial cuts in production at its 100,000 tonne/year styrene butadiene rubber (SBR) plant in Kaohsiung in the second quarter. The plant is currently running at full capacity.

Meanwhile, ABS producer Chi Mei is running its 1m tonne/year plant in Kaohsiung at around 50-60% of capacity.

In China, Shen Hua Chemical Industrial Co’s joint venture 180,000 tonne/year SBR plant in Nantong will also reduce its run rate to 60% in March from 65% currently.

Focus article by Helen Yan

Picture (top): Cars for export await shipment at Hyundai Motor’s Ulsan factory in South Korea (Photographer: Young Ho/SIPA/REX/Shutterstock)