US BD pressured lower as ample supply, slack demand continue into Q3

Downward pressure in US butadiene (BD) markets has persisted into the second half of the year as expected, with August BD contracts settling lower.

BD is used as a raw material for synthetic rubbers, which go into tyres for the automotive industry. 

US contracts dropped, tracking a steady decline in spot offer levels and decreases in Europe contract values - a three-month trend - as demand continues to be sluggish in downstream sectors.

“Dropping the prices domestically will not improve or incentivize additional buying, so the only reason I could see a further drop in NA (North America) pricing would be keeping parity globally,” a source said.

Spot offers have dropped from 41 cents/lb to 38 cents/lb since early July against scarce buying interest.

“The arbs are not really workable, and demand is weak … it doesn’t seem like anyone is in the market,” a source said.

The ICIS Contract Reference Price (CRP) settled at 40 cents/lb ($882/tonne), down by 3 cents/lb from July.

Three producers separately nominated lower prices. One producer nominated flat pricing and later revised to lower.

US BD Contracts (in cents/lb)

The macroeconomic outlook is dim, with the International Monetary Fund (IMF) saying last week that global GDP growth in 2019 and 2020 will be lower than expected because of US-China trade tensions.

While parts of the economy appear stronger, such as service industries, manufacturing has seen a sharp slowdown because of the trade war.

For global BD markets, supply never tightened as expected despite planned and unplanned outages because of weak demand, which is not expected to improve heading into 2020.

The US is better positioned than Europe and Asia, but domestic markets are mostly flat.

“No one is in dire need of material,” a source said, adding that some buyers are aiming to keep leaner inventories while BD producers have ample material.

Supply is trending toward long in the US - in stark contrast to last year’s tightness - as cracker operators opt for heavier natural gas liquids (NGL) in their feedslates where possible, yielding more BD, and as new ethylene capacity comes on line.

That new ethylene capacity has been slightly delayed, but is coming. Indorama and Lotte/Westlake are working through issues in achieving on-spec production, while Sasol is in start-up sequence.

While Europe and Asia have had more pockets of tightness, demand has been below expectations on those regions. Europe and the Middle East are supplementing Asia supplies.

“There’s downward pressure into Q4,” a source said.

BD is a key feedstock for synthetic rubbers, largely styrene butadiene rubber (SBR), which is used in tyre manufacturing. BD is extracted from crude C4s.

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