Initial US April BD contracts nominated at 17 cent/lb drop

(Clarification: recasts contract details in headline)

Focus article by Tracy Dang

HOUSTON (ICIS)–US butadiene (BD) contracts for April have been nominated by one producer at a larger-than-expected drop of 17 cents/lb, sources confirmed on Wednesday, following the crash in Asia values and on expectations of lengthening domestic supply.

If accepted in the market, the nomination would put April contracts for that producer at 93 cents/lb ($2,050/tonne), down from its March pricing of 110 cents/lb.

Despite early expectations that US BD contracts would soften in April, sentiment has become very bearish as Asia prices plunge.

“So much for our theory of [an April] rollover or slightly down,” a source said.

While some participants believe that the initial nomination called for a larger decrease than what they had been anticipating, others said it is “not surprising” considering the Asia downtrend.

“A tad high, but moving in right direction,” another source said.

Asia BD prices have tumbled to around $2,000/tonne, a drop of more than 33% since mid-February, when spot values were around $3,000/tonne.

The month-on-month crash in Asia values has led some US market participants to expect double-digit decreases in April contracts.

“With where Asia has dropped, we were expecting a reduction,” a buyer said. “We didn’t expect quite as large a drop [in US contract nominations]. We were thinking more around a 10-15 cent/lb drop.”

March supply of US BD remains tight as two producers are on allocation for the month and as other suppliers have asked customers to take minimum volumes on contract obligations.

Domestic availability of spot volumes is limited as two BD extraction units are down for planned turnarounds.

Still, that tightness is expected to ease by April as a producer restarts its plant.

Supply is lengthening further as several cargoes of BD imports from other regions – including Asia – are headed to the US Gulf.

US spot price ideas were as high as 150 cents/lb only weeks ago, but market participants are now pegging values for prompt volumes at around March contract levels.

“With Asia now even reporting prices at our below [the initial US April contract] nomination, I see spot probably around contract price or just above,” a buyer said.

Another buyer said: “No one will be real eager to buy at the moment as they all wait for the April price reduction.

Market participants await for individual April contract nominations from three other US producers.

US BD contracts typically settle at the end of the month for pricing in the upcoming month.

Major US BD producers include ExxonMobil, LyondellBasell, Shell Chemical and TPC Group.

*The company is nominating a price equivalent to an industry formula tied to the individual settlements of major US BD contract producers. The company’s price will not be included in the March price calculation, which is said to represent a weighted average of the remaining three settlements. Nominations in cents/lb.

Follow Tracy on Twitter