OUTLOOK ’18: Europe BDO demand expected buoyant with growth across all sectors

04 January 2018 09:30 Source:ICIS News

LONDON (ICIS)--European butanediol (BDO) demand is expected to be buoyant in 2018, with growth expected across all downstream sectors.

Demand is forecast to grow between 4-8% depending on the application, well above GDP growth in the region.

BDO is a chemical intermediate used in the production of polymers, solvents and fine chemicals.

Although spandex consumption drives demand in Asia, the view in Europe was much more balanced, with strong performances also expected from the polybutylene terephthalate (PBT) market.

The strong performance from the automotive sector has been a driver for demand growth for PBT this year, with again further gains expected next year.

“For 2018 I expect that demand will continue to grow, as the economy is performing well,” said one European seller.

The growth in the PBT market can be seen in operating rates, which were at 80% at the start of December in China.

This is a significant increase compared to levels in 2013, which for some players highlights the growth in the sector.

Operating rates are expected to remain at a higher level for PBT next year, with BDO plants in Europe also running hard.

BASF will be expanding its Schwarzheide, Germany, PBT plant, which some sources estimate will take between 10,000-15,000 tonne/year of BDO out of the market.

“This may have an impact on the supply/demand balance in Europe, and may result to a higher level of imports of BDO,” said one distributor on the effect of this expansion on the market.

After years of falling prices and oversupply, tightness plagued the market in 2017, amid global production problems.

The second and third quarters were particularly tight, with many buyers taken by surprise by the level of constraints.

While some buyers looked to Asia for relief, others had little choice but to slow and in some cases stop production.

The constraints of spring/summer are still fresh in buyers' minds, and they are expected to alter purchasing strategies for the year to come.

Only a small percentage of spot business is concluded in Europe, less than 20% of the overall market. However, this is expected to fall further next year, and buyers increase contractual volumes for more security in supply.

Buyers may also diversify their suppliers, again to mitigate the risk during any future potential constraints.

Going into 2018 the market is fairly well balanced, which was expected for the end of last year as activity slowed down ahead of the holiday season.

With such positive demand expected, many are questioning if the supply will be there to meet this growth.

If all European producers are running then there should be enough product to meet the demand; however, a fall in imports is expected.

While the European producers dominate local market share, imports are arriving from Saudi Arabia and Asia.

However, increased PBT production in Saudi Arabia from International Diol Co (IDC), which is partly owned by Sipchem, is expected to result in a further drop in exports from the producer.

Asian supply may also be tightened by the ongoing Chinese environmental inspections, which could limit exports from the region.

BDO prices started to increase at the end of 2016, after years of falling prices, with some concerns over industry profitability still lingering in the market.

“This brings uncertainty on who will be there tomorrow,” said one producer on the topic.

In the US, INVISTA has agreed to sell its apparel and advanced textiles business to Shandong Ruyi Investment Holding, including its BDO and downstream polytetramethylene ether glycol (PTMEG) and tetrahydrofuran (THF).

The deal is expected to be completed by mid-2018. Players are currently unclear on what the impact of this will be, and if it may reduce merchant availability of the product from the facility.

Although there may be question marks over supply and changing trade flows, the overall sentiment for 2018 is one of optimism.

By Katherine Sale