Butadiene Industry Chain Profit Moved down

SCI99

2020-05-29

Butadiene Industry Chain Profit Moved down

Introduction: After the Spring Festival holiday in 2020, the market price of butadiene in China went lower constantly. In early April, the butadiene price fell to a new low since SCI’s butadiene monitoring price. The butadiene ex-works price at Sinopec dropped to RMB 3,500/mt. As the butadiene price fell gradually, the profit at butadiene enterprises shrank obviously. However, the processing profit of the downstream industry, especially the synthetic rubber industry, improved notably compared with the early days. The industrial chain profit was gradually transferred from the feedstock to the downstream products, and the profit space of the downstream industry also improved. Besides, in terms of future market supply and demand changes, the boost from the cost side to the synthetic rubber industry will continue.

The industrial chain profit moved down as the decrease in feedstock price was wider than that in the downstream product price.

According to SCI’s statistics, from late January to early April, the butadiene price at Sinopec fell from RMB 8,200/mt to RMB 3,500/mt, down 57%. The PBR price at Sinopec dropped from RMB 11,100/mt to RMB 7,400/mt, down 33%. The SBR price at Sinopec decreased from RMB 11,100/mt to RMB 7,700/mt, down 31%. As seen from the above data, the downward extent of butadiene price was obviously wider than that of synthetic rubber price. Thus, in the process of price spread widening, the production profit of the downstream industry improved obviously from the early days.

According to the theoretical profit data of butadiene and downstream industries, the average profit of the butadiene industry from January to May 2019 was RMB 3,055/mt, while it was RMB 999/mt from January to May 2020. The average profit of the SBR industry from January to May 2019 was RMB -614/mt, while it was RMB 307/mt from January to May 2020. The SBR industry turned from losses to gaining profits. The average profit of the PBR industry from January to May 2019 was RMB -636/mt, while it was RMB 137/mt from January to May 2020. Overall, as the feedstock prices trend down gradually, the profits of the butadiene industrial chain have shifted from the feedstock to downstream products.

The operating rate of downstream industries ramped up due to improving profits.

Under the significant improvement of the profitability of the main downstream synthetic rubber industry, the operating rate of downstream industries warmed up obviously from the early days. According to SCI’s statistics, the average operating rate of the PBR industry from January to May 2020 was 65.6%, up 6% Y-O-Y. The average operating rate of the SBR industry from January to May 2020 was 64%, up 4% Y-O-Y. Overall, the operating rate of the synthetic rubber industry increased obviously compared with the same period of last year. Besides, in May, the operating rate of PBR and SBR industries reached around 70%, especially that the operating rate of the PBR industry increased by 10% Y-O-Y.

However, in terms of the downstream industry of synthetic rubber, the average operating rate of the tire industry dropped notably in 2020. According to SCI’s statistics, the average operating rate of the all-steel tire industry from January to May 2020 was 50%, down 15% Y-O-Y. The average operating rate of semi-steel tire industry from January to May 2020 was 47%, down 16% Y-O-Y. The demand saw obvious decreases from 2019. Therefore, the demand failed to bolster the operating rate of the synthetic rubber industry. Mostly, the increase in processing profit stimulated the operating rate of the synthetic rubber industry.

In the future, the feedstock supply will continue to be sufficient.

In recent years, the butadiene supply in China continued to remain in an uptrend. By 2019, the total butadiene capacity in China reached 4,059kt/a. The butadiene output in 2019 was 3,000kt, up 8.7% from last year. In 2020, newly added butadiene capacity will continue to go into production, and it is estimated that China’s newly added butadiene capacity will reach around 780kt/a. The growth of butadiene supply will be significantly accelerated. Moreover, China’s newly added butadiene units will be put into operation intensively. The newly planned butadiene capacity will reach 2,260kt/a. According to SCI’s data model, the domestic butadiene supply will reach around 4,800kt in 2024, up 46%

In terms of the demand, the planned projects are relatively limited, and the growth rate of demand is lower than that of supply. In the next five years, the newly added capacity of butadiene’s downstream industry will reach 5,860kt/a, but the actual consumption volume of butadiene will only increase by around 1,840kt. Besides, some newly added downstream units don’t have matched upstream units. However, the newly added butadiene units are mostly the matched ones of big ethylene projects. Thus, the overall operating rate of upstream units will be better than that of downstream units. According to SCI’s data model, in 2024, China’s butadiene demand will be 4,420kt, up 34%. In the future, China’s butadiene supply will be sufficient.

The domestic butadiene supply is expected to be loose, weakening the support to the butadiene price from the supply side. Thus, the butadiene price will probably fall and trend at lows. Accordingly, amid ample supply and low price, the production cost of downstream industries will be at low levels. The improvement in enterprises’ processing profit will still stimulate the increase in the operating rate of downstream industries. The favorable cost factors will benefit for butadiene’s downstream industries constantly.

.....

Please click "Read more" for more information