LONDON (ICIS)--There has been mixed reaction from market players in the wake of the European butadiene (BD) contract reference price for May settlement at €1,525/tonne, down €225/tonne, the largest month-on-month drop since August 2013.
With five producers and three consumers all confirming their agreement – albeit it somewhat reluctantly, according to one – many described the outcome as a compromise amid a reasonable consensus.
ICIS data showed that naphtha feedstock costs were higher month on month – about €19-20/tonne higher in mid-April, but this reduced to just €12/tonne at the beginning of this week.
However, this gain on the feedstock side paled into insignificance, given the global market conditions.
Both the Asian and US markets have suffered steep falls in spot prices – particularly in Asia, where prices have fallen from a peak of around $3,000/tonne CFR (cost and freight) northeast Asia in early February to around $1,250/tonne CFR northeast Asia in the week ending 21 April.
Such prices and supply have allowed for Asian exports heading first to the US in February and now to Europe, with the first volumes due to arrive in May – a rarity, given Europe's structurally long position.
Given the global price drops and the fact that Europe is traditionally an exporter of BD, the decrease in BD’s contract price in May from April’s €1,750/tonne was not in question: It was the magnitude of the decrease that was under debate.
Sources recognised from the start that it would be a difficult negotiation, but the emergence of May contract price nominations from the US showing bigger than-expected drops disrupted talks with players having to retreat to re-calculate prices and revise targets.
“The US nominations impacted hugely on the discussions,” a source said.
“We updated [our] position after the US [nominations]” a second source said.
Sources said that Europe needed to be better-aligned with global conditions to stop the threat of imports from the rest of the world as well as to avoid the displacement of European derivatives in global markets.
“These [current] high [European] prices stops exports, attracts imports,” a third source said.
“It was a difficult one, clearly some consumers were wanting to see a number closer to the US for competitiveness issues,” a fourth source said.
Producers had an “understanding” of the situation, some players said, but they were not wanting to go the whole way to bridging the gap with Asia and the US largely because all the spring turnarounds had not yet been completed as planned.
A couple of sources also pointed out this was the same conservative stepwise approach that had been adopted by the selling side when prices were rocketing upwards at the start of the year.
Back then, although the increase from January to February was a record €460/tonne, it still fell short of bridging the gap with the Asian market and subsequently the February to March contract price adjustment was another hefty three-digit increase.
There was disappointment from both sides of the fence.
One producer said it was “too much of a jump” as Europe supply was "still balanced to short".
Another said: “The [completion of] turnarounds are still very much on plan, but anything could still happen, difficulties can still arrive.”
Meanwhile, a consumer said: “We are in total disagreement with a settlement that does not reflect any reality. I have not heard one good argument for Europe becoming the highest price region.”
The third source concluded: “Europe is still more expensive that Asia, which is odd.”
Only time will tell whether the disappointment is justified.
There has been a pick-up in Asian prices in the latter part of this week, although few seem convinced at this stage that this will lead to further gains.
Meanwhile, the jury is still out with regard to a timely completion of BD unit maintenances.
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Focus article by Nel Weddle