Industry Chain Profit Concentrated in BD Sector
Snapshot: China’s butadiene market price fluctuated upwards from early 2024. Backed by high prices, the profit of the butadiene industry was bumper. However, the increment in prices of downstream products was relatively narrow, and downstream users faced obvious cost pressure. At present, the industry chain profit is mainly concentrated in the butadiene sector, and downstream users show thin appetites for production. In the short run, China’s butadiene market price may dwindle limitedly, and the overall industry chain profit may hardly improve.
In Q1, China’s butadiene market price continued to trend up and remained high in April. Boosted by unit maintenance and intensive exports, China’s butadiene price remained firm. Yet, the increment in downstream product price was limited, stemming from the slow recovery of end demand and rising supply pressure caused by the release of new capacity in the recent two years. On the whole, the price increment of downstream products was far narrower than that of butadiene, and their price spread was lower than the normal level. According to SCI, as of April 15, the butadiene price rose by 29%-34% from early 2024, but prices of downstream products only gained by 7%-14%. The NBR price even went lower. Moreover, the price spread between butadiene and synthetic rubber was less than RMB 2,000/mt, which was lower than the normal spread.
Butadiene and Downstream Product Price Change Comparison
The industry chain profit was concentrated in the butadiene sector.
From early 2024, the increment in butadiene price was obviously larger than that in the price of downstream products. Most downstream industries faced poor profitability or even losses for a long period. With the price rising, the profit of the butadiene industry was favorable, but the profit of most downstream industries descended notably. According to SCI, in Q1, 2024, the average profit of the butadiene industry was RMB 3,021/mt, up 85% Q-O-Q. Yet, most downstream industries were under profit losses except the NBR sector. Therein, the ABS industry suffered the most obvious losses. In Q1, 2024, the profit of the ABS industry averaged RMB -1,145/mt. Thus, due to profit losses, downstream users showed weak enthusiasm for production. Some downstream units were shut down or cut loads.
Downstream profitability may hardly improve on high butadiene prices.
In the short run, the decrement in China’s butadiene price may be relatively limited. Yet, butadiene is only a by-product of ethylene crackers, and its favorable profits have a slight impact on the operating rate of crackers. At present, the main products of crackers still face profit losses. Thus, in the short run, the operating rate of crackers will hardly improve, resulting in a limited rise in butadiene output. In May, with the restart of some shut units and the release of new capacity, China’s butadiene supply may be loose. Pressured by high costs, the operating rate of the downstream industry may be not high. Therefore, the butadiene price is likely to ebb. However, considering the limited replenishment of deep-sea cargoes and low loads of crackers in Northeast Asia, the decrement in butadiene price may be limited.
However, in terms of downstream sectors, it may be hard to see notable recovery of end demand, and the supply of downstream products may be sufficient, curbing their prices. If the butadiene price goes down, prices of downstream products may be dragged down as well. Thus, the price spread between butadiene and downstream products may be narrow. In the short run, the industry chain profit may continue to focus on the butadiene sector.
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