Europe BD contract rollover reasonable as Asian uncertainties weigh on market

25 July 2018 16:11 Source:ICIS News

LONDON (ICIS)--The rollover in the European butadiene (BD) contract reference price for August is a reasonable and practical outcome given the uncertainties over demand in Asia going forward, sources said on Wednesday.

The August BD contract price was agreed earlier this week at €1,125/tonne FD (free delivered) NWE (northwest Europe).

Some producers are disappointed in the outcome after having targeted increases of €25-30/tonne, according to some buyers, as both domestic and export spot prices had moved higher in July due to persisting supply constraints caused by high temperatures and light feedstock cracking.

Outside of those participating in the contract discussions, players had been speculating on anywhere between a rollover to a moderate increase from July, citing seasonal demand reductions in Europe and demand issues in the key export Asian market.

This also came against a backdrop of more or less unchanged naphtha prices month on month on the back of a balanced-to-tight supply situation.

“I had expected a slight increase, but the market’s perspective is a bit mixed,” a producer said.

Domestic BD consumption, while overall still considered healthy, has been impacted by some reductions in demand downstream.

“It [downstream demand] has not been what we expected, so we reduced a lot of BD offtake from all suppliers in July and again for August,” a consumer said.

It added that seasonality would have played a part as well, but that the reductions were a little more than had been expected.

“We can’t be the only consumers to see a decrease in demand – and it’s for the second month in a row,” added the consumer.

As expected, the producer did not agree, arguing that “we’ve not seen any particular reductions” in BD offtake.

Asian demand from the key synthetic rubber sector has been under pressure from squeezed margins, leading to production cuts.

According to one source, it would make “more sense to sell BD and not make the rubber” due to those squeezed margins in Asia.

Despite the near-term price pressure, sources have a generally optimistic outlook for later in the third quarter because they see a raft of scheduled cracker and BD unit turnarounds as being supportive, heightening demand and possibly leading to higher prices.

“What else could it [the BD contract price outcome] have been? Buying interest from other regions is minimal and, at the same time, the outlook is good,” a second source said.

The contract price might very well increase in September, this source went on to say, but adding that at this moment there was “no justification” for price increases.

BD is a key feedstock for styrene butadiene rubber (SBR), which is used in tyre manufacturing.

Pictured: A driver in Hanoi carrying tyres, a key BD end market
Source: Gerhard Zwerger-Schoner/imageBROKER/REX/Shutterstock

Focus article by Nel Weddle

Follow Nel Weddle on Twitter

By Nel Weddle