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Butadiene defies the odds and bounces to new heights

By David Potter, Clement Choo and Nicole Johnson

May 14, 2012 - Following its stellar performance last year and strong showing so far in 2012, the question is whether butadiene can continue swimming against the tide, despite recessionary trends biting across the globe.

Butadiene, an important industrial chemical used as a monomer in the production of synthetic rubber, is a key component in the manufacturing of tires for automobiles. There are some indications from the automotive sector that suggest that demand may be under pressure, which would in turn impact the price of butadiene.

Despite a healthy year of sales for tire manufacturers – France’s Michelin recorded its second-highest earnings ever of Eur1.29 billion ($1.68 billion) – the automotive industry in Europe saw a downturn in 2011.

According to the European Automobile Manufacturers Association (ACEA) demand for new cars fell by 1.7%, with new registrations for the year totaling 13.111 million in Europe.

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Significantly, this was the fourth consecutive yearly fall in new car registrations in Europe and was the lowest level of demand for new cars in over a decade.

And according to the ACEA, the decline was not restricted to countries where economic turmoil has been greatest as most of the significant markets shrank – from a 2.1% decline in France to 4.4% in the UK, 10.9% in Italy and 17.7% in Spain.

China is Asia's largest importer of SM, buying cargoes from all over the world. In 2011, China imported 3,607,735 mt, down 2% from 3,687,082 mt in 2010, according to customs data.

Germany was the exception as demand for new cars grew by 8.8% over 12 months. It remained the largest market with a total of 3.174 million new registrations, followed by France (2.252 million units) and the UK (1.941 million units).

Given the extremely fragile nature of the European economy, the outlook for the European automotive sector looks like getting worse before it gets better; a potentially uncomfortable scenario for butadiene producers.

According to automotive industry expert Ian Henry from AutoAnalysis, this trend was likely to continue during 2012.

Henry believes that “Spain and Italy will be worst hit among the larger markets” while “Portugal, Greece, Hungary and any other nations which turn out to have real or looming fiscal crises” will also see downwards pressure on new car take up. (See related chart: 2011 light vehicle sales growth)

According to JD Power, German light vehicle sales for 2012 are forecast to be down marginally from 3.402 million in 2011, to 3.353 million this year. Part of the reason for the fall in German production could be an increase in production in China, where production facilities of German brand cars was rising to accommodate the strong demand for luxury cars.

Chinese and US demand was seen as a key factor in supporting and increasing sales of groups such as BMW and Mercedes-Benz during 2011. Sales of the marques may well be maintained, but the production hub is changing according to Ian Henry.

Russia’s emergence as major player in automotive production looks set to continue however, with JD Power forecasting an increase in sales of Russian producer light vehicles of 2% from 2.646 million last year to 2.703 million in 2012.

This downturn was being reflected in the tire markets, both in Europe and globally.

A source at a major tire producer in Europe told Platts in January: “The tire markets are slowing down very quickly and we’re reducing our activities. We definitely need less butadiene now than at this time last year.

“Passenger cars are not strong and the replacement tire market is not as good as it was. The mild winter has also reduced the demand for winter tires.”

The industry source added that they were also expecting less demand to come forward from the global markets, with some difficulties expected in both Asia and the US.

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