Apr China Butadiene Demand to Dwindle
Introduction: Recently, the price of international crude oil trended down somewhat, but the butadiene price was still at a relatively high level. The profitability at butadiene producers improved notably. Yet, as the butadiene price remained high, downstream users faced high cost pressure. Some downstream industries even hovered on the edge of profit and loss. The whole profit along the industrial chain moved up again. Affected by that, some downstream industries cut production or operating rates, so the demand for butadiene slid accordingly.
From mid-to-late March, China’s butadiene market price fluctuated at a relatively high level, and the profitability of butadiene producers improved notably. Yet, the butadiene output didn’t ramp up. As the profit of the main products of crackers has not improved yet, the crackers may continue to run at low loads in April. Besides, some butadiene units will take maintenance, and the butadiene supply in April will hardly improve from March. Yet, due to the high butadiene price, the profit at downstream enterprises will ebb compared with the early days. The profit at some downstream industries will be squeezed gradually, so the downstream operating rate will be curbed. In April, the demand for butadiene may slide notably from March.
The profitability of the butadiene industry improved, but the output still declined.
From February, China’s butadiene price remained in an upswing. Although the crude oil price surged, the profit of the butadiene industry changed from negative value to positive value, backed by rising butadiene ex-works price. Especially in March, the theoretical profit of the butadiene industry hiked from RMB 748/mt in February to RMB 1,970/mt in March, up 163%. As butadiene is a by-product of crackers, its profit can’t determine the operation of ethylene crackers. When the profit of ethylene and propylene is still weak, the operating rate of domestic ethylene crackers doesn’t ramp up notably. Most of the crackers will continue to run at low loads in April. Besides, in April, a total of 600kt/a butadiene units will take maintenance, and SCI reckons that the butadiene output may drop by around 3.6% from March.
The profits of downstream industries ebb and the demand for butadiene will crash.
From the perspective of the profitability of the butadiene downstream industry, the profitability of the main downstream industries slumped. The average theoretical profit of the SBR industry in March was negative and faced losses. The profit of PBR and SBS industries was also notably squeezed. The profit of the ABS industry was relatively bumper, but the decline in profit was also obvious. Based on the current decline in the profit of downstream industries, in April, the operating rate of most downstream industries is expected to slide. In particular, the SBS industry may see the largest decline in output, followed by SBR and ABS industries. Apart from cost factors, there is also routine maintenance of some downstream units, so the consumption volume of butadiene will decline. According to SCI, the demand for butadiene in April may drop by 6.8% from March, which is notably higher than the decline in supply.
Based on the changes in industry profits, the supply and demand of butadiene in April will change notably from March. The supply and demand gap will narrow, and the support from fundamentals may diminish gradually. At present, the market price of butadiene begins to drop, and players should pay close attention to the changes in operating rates caused by downstream profit adjustment in the process of price decline.
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