ANALYSIS: Could global butadiene prices be set to fall?
London (Platts)--25May2011/905 am EDT/1305 GMT
The global butadiene market is currently enjoying record high prices,
with the US Gulf Coast, Europe and Asia all trading at previously unseen
price levels in recent weeks.
Yet there were signs of a potential fall in the global value of
butadiene as Asian sources reported weakening Chinese demand this week, while
there were fears in the US Gulf Coast market that imported natural rubber
demand could dampen previous strong demand for butadiene.
All three major regions have been trading at all-time highs. For the
week ending May 20 spot CIF US Gulf Coast prices closed at 192.50 cents/pound
($4,232/mt). This compared with a spot price of 108 cents/lb on May 21, 2010,
when the market was also considered as tight. In Europe, the FOB Rotterdam
market closed at Eur2,795/mt ($3,932/mt) Tuesday versus Eur1,695/mt this time
last year. Meanwhile the FOB Korea market was valued at $3,799/mt at close
May 20, $1,598/mt higher than the same time last year.
But sources in Asia have recently begun to report a slowdown in Chinese
buying, with demand falling from the onset of May as the market has
become well-supplied, said local sources. An end-user was offered a 1,500 mt
spot cargo from Sinopec Maoming for about $3,450-3,500/mt CFR China last week
and there were few parties interested in the parcel. The spot cargo was in
the market for more than a week, the end-user said.
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A trader added: "Korean producers are looking for up to $4,000/mt, but
in China it is much lower. Producers are offering at $3,400/mt FOB China. The
only domestic demand in China is from distributors, not end-users. Up until
May, Chinese buying was at maximum capacity, but it is now totally different
According to sources the downturn in buying in China has been brought on
by the cash liquidity crisis in the country, which has reduced credit
facilities of buyers.
Market participants say that the slowdown in demand is caused by lower
cash flow and loan availability in the Chinese financial system. China has
implemented various steps -- including raising interest rates and banks'
reserve rate ratios -- to tame inflation.
"There are less loans available now," said a producer. "And buyers are
holding off from buying."
Other sources felt that the high price of butadiene has also played a
part in the Chinese slowdown. One source said: "[Acrylonitrile butadiene
styrene] producers can't cover the cost of butadiene and butadiene rubber
producers can't cover the costs either. Only styrene butadiene rubber
producers are ahead. Surely that means a fall in June and July."
The lack of Chinese buying has not weakened other Asian markets however,
thanks to strong global demand from both the US Gulf Coast and Europe. This
has lead to the FOB Korea market to be price on a net back to the US.
Prices climbed last week with Korean producers selling at $3,700/mt and
$3,800/mt FOB Korea. Both parcels were bought by traders moving product to
the US sources said.
There has been no sign of any fall from those levels, and one Korean
producer said this week: "Deep sea offers to the US are still at
$3,700-3,800/mt FOB Korea and we have already sold out our spot product for
The producer acknowledged, however, that "China is still not good," but
said that any potential downturn in Asian butadiene prices would be a
reaction to the US -- not local markets.
The producer said: "I think [forward price direction] depends on the US
market. There are still many traders seeking butadiene for the US. If the US
market becomes bearish then the recent high prices will adjusted downward.
But for July, the US market is still good," the producer said.
Other Korean producers acknowledged that should they be forced to sell
locally prices would drop significantly without the support of the US market.
One producer said: "I feel the last FOB deal prices, could be the
ceiling. A big gap exists between Asia and out-of-Asia. So almost all the
Korean producers focus on out of Asia. If the deep sea market closes, then
the [FOB Korea] butadiene price will adjust."
The outlook for the US was mixed with one US butadiene source saying the
spot price in the US is "holding right now, but it's definitely not going
According to sources the demand for butadiene in the US has been muted
somewhat by fears that imported rubber from Asia could dampen demand for
butadiene in the US. "There are some real concerns that finished rubber from
Asia -- if enough is sent to the US -- will make it impossible for [US
butadiene converters] to pass on the higher butadiene prices." one converter
Butadiene derivative SBR can be used as a replacement for natural
rubber, in areas such as tire manufacturing. For much of the year to date,
natural rubber pricing has been higher than butadiene, stoked by fears of a
global shortage or product.
According to sources, TSR (technically specified rubber) grades 10 and
20 are the most likely rubber grades to be replaced by butadiene in relevant
applications. For much of the year to date natural rubber prices have been at
a premium to butadiene, a factor which also helped create record high
TSR20 prices touched $6,000/mt, following a spike which began during the
final quarter of 2010. Although the Singapore commodity exchange value for
TSR20 rubber futures for June 2011 closed at $4,542/mt May 24, there had
previously been a drop in prices to as low as $3,500/mt, also caused by a
fall in Chinese demand.
One natural rubber trader explained: "There has been some availability
from China, where demand has been reduced by the cash liquidity crisis.
Because of this, there has been some exports of local product to the US.
China consumes 30-35% of natural rubber produced, so even a 10% reduction in
demand can make a big impact."
Despite this, there appeared no widespread fall in demand from US
buyers. One Korean producer said Friday: "I've got several bids from the US
for early July and prices were also rising according to sources.
The US spot price for butadiene last week was assessed at 182.50
cents/lb CIF USG, about 40 cents above the May contract price. A source this
week said the spot price was approaching 200 cents/lb ($4,408/mt), but was
unlikely to go much higher because of the potential demand destruction caused
by imported Asian rubber.
Looking ahead although natural rubber production was picking up
according to sources, one trader believed that Chinese buying would increase
in June and said: "I think we are at the bottom of the downwards trend."
US butadiene consumers who buy on a contract basis, though, could expect
higher prices in June though. No June nominations were heard in the US market
as of Thursday, though speculation was for a 10 to 15 cent increase, which
would push the US butadiene contract as high as 160 cents/lb.
European prices also remained strong this week as supply tightness meant
that consumers were competing with the US for spot butadiene cargoes.
One end-user was offered a 3,500 mt parcel for $4,000/mt from Haldia,
India, arriving early June, but had turned it down as current requirements
were fulfilled by contract cargoes. On Thursday, the European spot market was
placed at about Eur2,700/mt ($3,854).
In addition, European traders were also able to take advantage of US
demand and prices.
Low crude C4 supplies in the US are also drawing the butadiene feedstock
away from Europe. Early May, the Nordic Gas loaded a mixed
butadiene/raffinate/CC4 cargo from Northwest Europe to the US Gulf while at
the end of May, the Maersk Humber will load 9,000-10,000 mt of crude C4 from
Aliaga, bound for Houston.
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