Europe Oct butadiene contract higher than expected for some

Focus article by Nel Weddle

LONDON (ICIS)–The 16% increase in the European butadiene (BD) contract reference price for October was a bit higher than expected, according to some market participants on Tuesday.

The October contract reference price settled at €900/tonne, late last week, up by €125/tonne from September.

Talk centred on a range of €875-925/tonne primarily, according to some of the participants, with €900/tonne the obvious midpoint.

Three consumers and five producers have directly confirmed the settlement to date, whle confirmation is pending from another producer known to have also been involved.

Given the extent of the participation, the settlement was quite well supported overall, but other key BD consumers were conspicuous by their absence.

While an increase had been anticipated on the back of the supply and demand-led gains in spot prices, as well as firmer feedstock values, some players said that the hike was a bit over the top considering the apparent slowing down in Asia and the uncertainties over pricing direction once China returns from its week-long holidays in mid-October.

“In view of Asia, I believe its rather a high settlement,” a source said.

Another source agreed: “It’s really too high,” adding that the settlement had come quickly “before the big slide in spot prices in China.”

However, others described the settlement as fair.

“It was fair and reflecting higher spot prices and [also we were] catching up on a very low increase for September,” a third source said.

A fourth said: “Our feedstock costs have increased and are increasing and we needed to close the [spot price] gap to contract.”

Asian prices had surged by about 64% since early August, according to ICIS data, but last week were softening on the back of a weakening China domestic market – Chinese BD producers have been reducing their offer levels since 21 September.

That the Asian market had softened in the run-up to the holidays was no surprise, sources said, the key question was really what would be happening to demand once the holidays were over.

“Its absolutely slowing down for sure, the question is what happens afterwards,” a fourth source said.

It added: “We have mixed feelings, downstream is not as good as it could be but on the other hand, there is limited volume available.”

The first source said: “It’s difficult to predict what will happen. I am inclined to believe that the base layer is there, it’s just the second layer which is questionable.”

Indeed, at this stage, few sources in Europe appear to be expecting a collapse in Asian prices, rather a return to a more workable level which suits both buyers and sellers.

“What we really do not want, is the same situation we saw in December, January, February, it was too overdone,” a fifth source said, referring to the dramatic swings in contract prices in the first quarter of this year.

“Europe must remain the cost-advantaged area, for butadiene as well as its derivatives,” it said.

This is likely to be the case once October contract prices are confirmed in the US. Discussions are ongoing with the two announced nominations indicating a considerable increase month on month in the wake of Hurricane Harvey.

Follow Nel Weddle on Twitter @nelweddleICIS