September 28, 2018

Butadiene - A Volatile Market

Butadiene prices were significantly higher than ethylene over the first half of 2017, but plummeted to below even the price of propylene in the second half.  Butadiene prices strengthened through the first half of 2018 on tightening availability of C4s and limited supply.  The market remains in a highly volatile state, with prices rising or falling by several hundred dollars per ton in response to changing sentiment on natural rubber supply and changes to butadiene stocks caused by cracker outages.  Natural rubber prices returned to their average levels of around US$1600 per ton in mid-2017 after a spike to US$2700 per ton which started in December 2016.  The demand effect filtered rapidly through to SBR and BR, and in turn drove butadiene prices to over $3000 per ton for a short time at the beginning of the year.  Downstream fundamentals, notably the increasing vehicle parc in the developing world remain strong, and most of the volatility coming from natural rubber supply and the tendency to overbuild and deplete inventories of butadiene and its derivatives.

In 2018, year to date figures for PCLT tyres in June show low positive growth for the OE and RT markets, lower than in 2017.  Automotive and tyre industry growth was strong in most regions in 2017 with the global PCLT tyre market up by around three percent in 2017.  Demand was robust during 2016, with the major Asian and Western markets following historic trend growth, and only Eastern Europe and South America remaining problematic.  U.S. anti-dumping duties on Chinese passenger car/light truck tyre imports remain a major influence on the global industry since their imposition in 2015.  While Chinese tyre production dropped sharply in 2015 as a result, it recovered equally well in 2016.  Fears that the U.S. anti-dumping duties would be extended to cover heavy truck and bus tyres were allayed, with a finding in early 2017 that no harm had been caused to U.S. suppliers as a result of the imports.  The duties on passenger car and light truck (PCLT) tyres have however had wide ranging effects in other regions, creating winners and losers in all regions.  Some countries with spare capacity to produce low priced PCLT tyres have benefitted, replacing China’s position in the U.S. market.  Other countries have lost tyre production however, as Chinese exports which had previously targeted the U.S. found new markets in developing regions.

Emulsion styrene butadiene rubber (eSBR) has been the main victim of substitution by natural rubber, and was also the first to benefit from the recovery in natural rubber pricing in late 2016.  Demand for butadiene rubber (BR or polybutadiene) was however reduced in late 2016 by the liquidation of consumer inventories when prices of butadiene and derivatives rose sharply.  The volatility of natural rubber prices have led to volatility of SBR consumption as more natural rubber is used when prices are low and vice versa.  Prices of natural rubber in 2018 have remained more stable at around US$1 700 per ton as producers in Thailand, Malaysia and Indonesia have cut production and exports in an attempt to support the price.  By mid-2018 natural rubber lay around US$500 per ton below BR and SBR.

Upstream, the surge in availability of light feedstocks resulting from shale exploitation in the United States is starting to affect butadiene production in other regions.  The first exports of U.S. ethane to Europe occurred in March 2016, but the volumes imported were not significant enough to affect butadiene availability.  The major investments made by INEOS, SABIC, Borealis and TOTAL Petrochemicals allowed ethane imports of 1.17 million tons from the United States in 2017.  INEOS, which was the first company to engage in transporting ethane from the U.S., has now announced a new butane tank in Europe which will be used to transfer butane from deep sea sources such as the United States to one or more of its European crackers.  Increased use of NGL feedstocks will have a marked effect on crude C4 availability for export, and possibly even for local consumption. 

NGL feedstocks such as ethane, propane and butane have provided increasingly competitive ethylene production economics relative to naphtha in recent years, but provide much lower amounts of co-products such as the crude C4 steam from which butadiene can be extracted. 

The global market for crude C4 is expected to tighten in the coming years as the butadiene market continues to grow, and the rate of crude C4 supply growth from steam crackers declines.  The low energy prices in recent years have slowed the progression of the shale industry in North America, but cost reduction and efficiency improvements have allowed a recovery in gas supply growth, and the volumes of excess NGLs for export from the United States will be a defining factor in olefins markets globally in the coming years.  So far only Reliance Industries in India and Wanhua Chemicals in China have firm plans to import ethane in Asia, although other plans are expected to become firm in China.  Although the volumes which Reliance is set to import are very large, imports of propane to Asia are a more significant factor in the near term.  New naphtha/heavy liquids cracker projects have been announced in China for start-up post 2020 which will ease at least the local supply shortage for crude C4.  These projects highlight the ongoing propensity to develop liquids cracking capacity in Asia, and hint at likely ongoing cyclicality in crude C4 availability.

Find out more in our recently published reports:

Market Analytics: Butadiene and Derivatives - 2018

Profitability and Price Forecasts: Butadiene and Derivatives - 2018


Will Cameron, Senior Consultant