Global pressure pushes US November BD lower despite snug

03:38' PM - Wednesday, 31/10/2018

US November butadiene (BD) contracts fell by 16% as pressure from global price declines outweighed tight domestic feedstocks which had been supporting US prices.

The ICIS Contract Reference Price (CRP) for US November BD settled at 61.25 cents/lb ($1,350/tonne), down from 72.75 cents/lb in October.

An arbitrage window opened from Asia into the US in early October and widened throughout the month. There has been little appetite in the US for imports, as shipments would be arriving close to year-end when US industries seek to lower inventories.

But the wide price spread between the US and Asia BD costs has put pressure on domestic derivative markets.

Derivative sectors such as styrene butadiene rubber (SBR) may be reluctant to produce domestically if the cost-gap is too wide, a market source said.

"The BD might not flow in, but the rubber will," the source said.

November contract nominations were issued separately by producers at various declines of 2-13 cents/lb. Following the Europe BD November settlement at a €100/tonne($114/tonne) decline on 25 October, two US producers separately revised their November nominations.

The November decline is the largest drop for contract prices in 2018 and follows five consecutive months with contract prices above 70 cents/lb, as tight upstream crude C4 feedstocks have supported BD prices.

Early in the year, cracker turnarounds and a lack of shipments from Asia limited crude C4 availability. As those issues resolved in mid-2018, crude C4 production began to be limited by cracker economics.

As new crackers came online, ethylene supply lengthened, ethylene prices plummeted, cracker margins narrowed and the share of ethane feedstocks increased. Ethane produces the least amount of co-products like crude C4 when cracked.

Some of the new crackers are designed to run only ethane feedstocks, while the narrow margins have encouraged more flexible crackers to utilise more ethane as it is the most economical feedstock for ethylene production.

The share of ethane in the US cracker feedslate rose to 75.3% in August, up from 64.5% in the same month the prior year, according to data from Jacobs Consultancy.

Crude C4 production is expected to increase over the next year as further crackers come online. About 6m tonnes/year of ethylene capacity is expected to start up by the end of 2019. About 4.5m tonnes/year of ethylene capacity was started up in late 2017 and in the first half of 2018.

The US has BD capacity to process additional crude C4 as it becomes available either from additional cracker capacity or through increased imports.

Currently, crude C4 supply remains somewhat limited but has begun to improve.

"The feeling is crude C4 is not as tight, but it's not loosened up for everybody," a market source said.

Some BD producers have encouraged customers not to maximise purchased volumes if not needed, while others have indicated that extra material would be available, the source said.

Despite the production headwinds, supplies have not been overwhelmed by demand. Many market sources have pegged the domestic BD market as balanced to snug rather than short in recent months.

Demand into downstream SBR waned over the summer months, but began to pick up in September as autumn is a typically strong season for tyre sales. Demand may begin to fall as tyre sales typically decrease in the winter, but the lower domestic BD costs may spur some inventory build-up.

"We will have to watch for the delta between North America and Asia BD prices to see whether there would be some low-priced imports coming from Asia," an SBR market source said.

Demand into the construction sector, which has remained strong over much of the year, is expected to decline this quarter as colder weather approaches.

Major US BD producers include ExxonMobil, LyondellBasell, Shell Chemical and TPC Group. - ICIS -

($1=€0.88)

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