Butadiene arbitrage flip pushes Asian C4 to US
By Clement Choo, Miguel Cambeiro, Jeremy Rakes
September 19, 2013 - Weak global tire demand is largely suppressing producer attempts to
widen butadiene margins, despite strong feedstock costs and a reduction in
butadiene supply, sources from the synthetic rubber market said this week.
There has been a recovery in the global butadiene market recently, led
The FOB Korea benchmark for Asian butadiene stood at $1,384/mt Monday,
its highest since June 14, when it was assessed by Platts at $1,360/mt.
Analysis continues below...
Request a free trial of:
Asian Petrochemicalscan provides weekly market updates, commentary and assessments ranging from naphtha feedstocks to aromatics, olefins, and polymers in Southeast Asia, Korea, Taiwan and Japan.
Tracking the higher spot prices, China Petroleum and Chemical Corp., or
Sinopec, Tuesday raised its ex-works butadiene prices in the south by 3% to
Yuan 9,800/mt, or $1,335/mt on an import parity basis. In addition, the
state-run company raised prices in eastern and northern China by Yuan 200/mt,
or 2%, to Yuan 9,500/mt, compared with Yuan 9,300/mt on September 9, when it
increased prices by Yuan 300/mt.
Although Asia-based market participants said there has been resistance
from the important tire sector, there has been buying support from operators
of acrylonitrile-butadiene-styrene plants.
Another reason for the higher prices is butadiene operators seeking
breakeven margins for the synthetic rubber feedstock.
On Monday, naphtha prices stood at $956.63/mt CFR Japan, which put a
price spread of $427.37/mt between the former and the butadiene benchmark.
Assuming $500/mt for conversion costs, butadiene spot prices were
$72.63/mt in the red.
Traders and producers predicted Tuesday that spot prices are set to
rise, with October cargoes mostly sold out, adding that discussions for
November parcels could begin as early as next week.
EUROPEAN TRADERS NOT KEEN TO CLOSE ARB TO ASIA
In Europe, spot prices rose $12.50/mt on Monday to be assessed by Platts
at $960/mt FOB Rotterdam, prompted by the rise in Asia and strong feedstocks.
The price represents a 60% surge since July, when it crashed to a
four-year low of $597.50/mt.
But traders remained wary of exporting product due to the particular
price volatility risks in butadiene, heightened by the eight-week shipping
period to Asia.
With CFR China prices at $1,390/mt, freight to China mainport at around
$350-400/mt, sources said that parcels could be exported at anywhere between
$990-1,030/mt FOB Rotterdam.
At the higher prices seen recently, butadiene is continuing to sell well
below the cost of production given that prices for feedstock naphtha rose to
$970/mt CIF NWE in September. Naphtha cargoes were assessed by Platts at
$934.50/mt on Monday.
Even a September butadiene contract price of Eur775/mt FD NWE, or
equivalent to $1,031/mt, means that butadiene is being produced substantially
below breakeven costs, sources said.
In Europe, market participants said producers are still waiting for a
recovery in the key automotive sector. Butadiene rubber is a key component of
styrene-butadiene rubber, used in the manufacture of tires and other
After a 5% year-on-year increase in EU car registrations in July, new
passenger car registrations in the bloc fell by 5% in August, European
automobile manufacturers' association ACEA said Tuesday.
But with the butadiene oversupply problems seen through much of the
second and third quarters now over, producers are looking to to raise prices
and expand margins squeezed by the rise in energy costs.
"If you look at butadiene in the US at $944/mt and in Europe at
$1,000/mt (Eur775/mt), we are still below Asia," a trader said last week.
This was backed by a tiremaker who said the price has to "be below
$900/mt FOB, [but] I don't think that anyone is going to sell below $900/mt.
This is different to a couple of months when it dropped [below] $700/mt.
Naphtha is so much more expensive than two or three months ago."
"Looking at co-crack and hydrogenation value, and with the CP at
Eur775/mt [the butadiene price] still not high enough because naphtha is
above $900/mt. There's a disconnect with naphtha, but buyers can't live with
that higher number," the tire-maker said.
The same source confirmed that rubber demand remains subdued.
Michelin cut capacity in June, and a source at the company said it is in
no hurry to increase it again.
"As soon as business ramps up then the company will [increase
production], but we just don't see it happening in Q4," the Michelin source
"I think that confidence is at a low stage, it doesn't come overnight.
When you are coming back from a low point in the market, confidence is like
that and people have to see some track record week-over-week," a Europe-based
consumer said Tuesday.
US LAGS BEHIND ASIA, EUROPE
In the US, market sources continued to speak of prices lagging behind
the increases seen in the European and Asian markets because of weak demand.
Platts assessed the weekly US butadiene price 1 cent higher on Friday at
48 cents/lb ($1,058/mt) CIF US Gulf Coast, but sources have been talking the
market between 45-50 cents/lb CIF USG for most of the last month. However,
sources said the 45 cents was more of level for buyers who were
Downstream demand in the US tire and styrene-butadiene rubber markets,
which make up over 50% of butadiene demand, continued to be heard sluggish,
while demand in the downstream nylon and acrylonitrile-butadiene-styrene
industries has been steady.
Supply has been heard available but tightening in the market as fewer
imports have been heard.
With nominations for the October US butadiene contract price due within
the next week, expectations are for a possible slight increase but most US
sources don't predict an increase into the 50s cents/lb after the September
contract settled at a rollover of 40-47 cents/lb.
Chart: Butadiene FOB Korea vs CIF USG