US BD contracts plunge further in July on ample supply, global drop

Focus article by Jessie Waldheim

HOUSTON (ICIS)–US July butadiene (BD) contracts settled on Thursday at a fourth consecutive month of hefty decreases, leaving market participants wondering if a bottom is near.

US BD contracts fell by 15 cent/lb from the previous month, putting July prices at 45 cents/lb ($992/tonne), as lengthening domestic supply and a global BD downtrend have weighed on the US market.

US BD contract prices had climbed sharply in the first quarter amid production outages, limited producer sales and climbing global BD prices. By March, contract prices at 110 cents/lb had more than doubled from 52 cents/lb in December.

Since March, US BD prices have fallen by 65 cents/lb – or by 59% – as supply has improved and as global BD prices have weakened.

With ample supply, US prices needed to move lower to keep arbitrage windows closed, a market source said.

“North America has two challenges now – protect themselves from synthetic rubber from Asia and protect themselves from BD coming from EU to North America,” another source said.

In Europe, spot prices have fallen in recent weeks, and July contract prices have settled at a €400/tonne decline from June.

In Asia, BD prices were in steep decline for several months. While prices in the region have recovered slightly in the last two weeks, they remained well below US June BD contract prices.

An expected recovery for the Asian BD market could lead to strengthening global prices, but the US market faces some additional headwinds from ample supply.

Recovering supply has helped push BD prices down over the last several months as production issues from the first quarter were resolved and as downstream outages limited demand.

A US Gulf styrene butadiene rubber (SBR) plant was shuttered in late March. While that plant has been sold, it remains offline.

Additionally, another derivative plant had been down for a turnaround since late March. While that plant has restarted, market source have said that BD supply remains ample.

“Supply definitely remains long,” a market source said.

There also is ample supply in the US of crude C4s, from which BD is extracted.

“I’m expecting [BD is] near a bottom, or maybe one more month with a decline,” the source said.

However, another market source believes that the floor is much lower but reaching it would depend on how quickly global BD markets strengthen.

“Asia will drive the pricing, so if Asia demand does not show up over these next couple months and the crackers and BD extraction units continue to run well, we may see the floor,” the source said.

On a longer timeline, the market faces some additional downward pressure from lengthening supply, as several new or expanded crackers are expected to come online this year and next.

The US BD market has been structurally short and is expected to remain so. However, “the region will be less short a year from now”, another market source said.