OUTLOOK ’19: US Q1 BDO contracts could fall on feedstocks

HOUSTON (ICIS)–The first quarter has a history of being unpredictable when it comes to US butanediol (BDO), with contracts likely to settle in early January.

There are no plant issues, at least in the US, and demand is stable for the chemical intermediate used in the production of polymers, solvents and fine chemicals. Buyers say there is plenty of BDO available, and no producer has nominated an increase, for the second quarter in a row.

A buyer noted that prices for most of the major BDO feedstocks have been flat or down in recent months: US December methanol contracts dropped, as did November propylene and most likely December as well. Maleic anhydride monthly contracts seem a good bet to fall also.

 “That’s what’s keeping prices from going up,” the buyer said, adding that one scenario for first-quarter contracts is a rollover.

Yet BDO price history shows that rollovers are rare in the first quarter, with only one roll in the past decade. Quarterly contracts usually go up or down, with just as many quarterly increases as decreases in the past five years and a fairly even split over the past decade.

Another buyer noted that the recent plunge in oil prices and the resulting decline in feedstocks highlights the latest downtrend in practically every petrochemical and not just in the US. Spot methanol has plunged by 25% in China during the past month, and spot BDO has slipped a few percentage points also.

BDO contracts have followed big trends in oil over the past decade, as have many petrochemicals. BDO has tracked oil especially when the trend lasts for a year or more.

During the recent multi-year rise (shown on the following chart, converting the West Texas Intermediate [WTI] benchmark to cents/lb), crude almost tripled in price between January 2016 and late September this year. BDO quarterly values rose during that period for nine consecutive quarters, jumping by 61%.

However, BDO has not always tracked crude (WTI) in shorter trends. Oil prices in 2011 jumped back and forth, dropping by 30% from April to October that year and then rising by 42% from October 2011 to March 2012.

BDO contracts moved opposite crude in the first dip and stayed mostly the same in the follow-up rise.

The second buyer took issue with a possible rollover, calling the latest drop a signal that two years of increases in US BDO are over.

“Enough is enough,” the buyer said. “There’s no supply-demand imbalance anywhere in the world.”

Focus article by Lane Kelley

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