BDO is on the verge of being 'out of control', exacerbating the crisis in the US automotive supply chain

Recently, a chip crisis is sweeping the global automotive industry.

As everyone knows, there is a serious shortage of chemical products, which is even worse for the supply chain of the US auto industry!

BDO supply is severely in short supply

According to ICIS, the serious shortage of supply of butanediol (BDO) and its derivatives in the United States has become one of the main factors that have restricted production in the automotive industry.

According to many market sources, the supply of BDO derivatives in the United States, polytetrahydrofuran (PTMEG), has also experienced a severe shortage, due to an unexpected government order request prior to contract customers.

According to sources, PTMEG's precursor Tetrahydrofuran (THF) may also be subject to a separate government contract, causing further tightening of supply.

Data shows that THF is the largest downstream application of BDO, consuming more than 40% of US BDO production in 2020.

Due to the suspension of production at the Lycra plant at the end of 2020, the U.S. BDO production capacity was reduced by approximately 30%. It is expected that this proportion will drop to 30% in 2021.

At present, the global supply of BDO is extremely tight. The average operation rate in China has almost reached 75%, which is much higher than the equilibrium point of 60%, resulting in a decline in the operation rate of downstream polybutylene terephthalate (PBT) plants in the region.

An American seller said: "The demand is unbelievably high, and every pound of goods has a place."

 "We are on the verge of total loss of control." Another seller said when describing the fragile market balance.

The shortage of BDO and by-product isocyanate and other chemicals may cause downstream plants to become idle.

A buyer said that one downstream factory had run out of BDO, while another factory was “struggling” due to lack of isocyanate.

The scarcity and strong demand of BDO led to a substantial increase of 45-60 cents per pound in the nomination price of the contract in the second quarter.

The market is expected to return to balance soon

However, the shortage of isocyanates may limit the demand for BDO and help the market restore balance more quickly.

With the restart of LyondellBasell’s propylene oxide/styrene monomer (PO/SM) plant in Chanalview, Texas, supply should increase soon. This factory also produces BDO.

The other two US manufacturers were not affected by the storm, but due to the shortage of drivers and trucks, logistics (loading and transportation) became a major problem.

 ICIS senior analyst said that the current supply of PU raw materials (including BDO) is likely to cause production interruptions in the automotive industry. The automotive supply chain will encounter difficulties in other polymers and plastics, microchips and other components, especially in PU chemicals, because the output is relatively large, while the rest of the world has tightened supplies. "

Automotive supply chain tightening

Industry body LMC Automotive said that the shortage of the entire supply chain is forcing US auto factories to reduce production and let employees take leave. This situation may even spread to the second quarter.

Some analysts said that compared with 2020, the recovery of global production in 2021 is limited.

Due to increased demand for game consoles, notebook computers and other technological products, chip shortages have led to a slowdown in automobile production. Due to low inventory levels, the United States is one of the countries most affected by these shortages.

Ford, FCA, Volkswagen, General Motors and Honda have all announced the temporary closure of plants in the United States, Canada and Mexico during the first quarter.

Oxford Economic Research Institute estimates that this will result in a reduction of 230,000 car sales in the region in the first quarter.