China Butadiene Market Headed Up Despite Tepid Fundamentals
Introduction: Since 2022, China’s butadiene market price has continued to advance. The market price of butadiene climbed from RMB 4,000/mt in early 2022 to RMB 9,000/mt at present, up 110%. Yet, as seen from the supply and demand fundamentals, favorable factors are relatively limited. Thus, which drivers do bolster China’s butadiene market prices? The detailed analysis is as follows.
As seen from the above chart, China’s butadiene market price slid to a low level at the end of 2021, and it began to go higher at the beginning of 2022. As of March 3, the delivered price of butadiene in the Shandong market was around RMB 9,000/mt, up 107% from early 2022. The delivered price of butadiene in the Jiangsu and Zhejiang market was around RMB 8,800/mt, up 112% from early 2022.
The fundamentals lent limited support to the market.
From January to February 2022, the butadiene supply first slid and then moved up, while the demand dropped after ramping up. In January, China’s butadiene supply was lower than the demand, and the supply-demand spread enlarged. Yet, in February, the butadiene supply was higher than the demand, so the supply-demand spread turned positive. As the market price of butadiene trended down in December 2021, the profit of downstream industries was fairish when the butadiene price was relatively low, driving up the overall production enthusiasm. Thus, in January, the overall consumption volume of butadiene remained in an uptrend. Yet, in February, due to the Spring Festival holiday, some downstream enterprises shut down the units and took holidays. Thus, the consumption volume of butadiene in February dropped notably from January. As seen from the supply, as some butadiene units were shut down for maintenance, the butadiene supply was curtailed somewhat. Yet, China’s butadiene supply gradually recovered, as the maintenance ended. The overall butadiene supply warmed up. On the whole, in February, the support from the supply-demand fundamentals was weaker than that in January. However, compared with November to December last year, the supply-demand spread from January to February 2022 turned from positive value to negative value, which lent certain support to the butadiene price.
Support from the cost was enhanced gradually.
From January, the international crude oil prices saw constant increases. As of the beginning of March, the international crude oil price rose to over $100/bbl, and the naphtha price also remained in an upswing. The butadiene production cost went higher accordingly. From January to February, the production cost of butadiene trended up, especially in February. According to SCI, the average cost of butadiene was RMB 7,300/mt in February and RMB 6,800/mt in January, obviously higher than the average cost of RMB 6,400/mt from November to December 2021. Although butadiene was not a cost-dominated product, rising costs also restricted the operating rate of crackers under the condition that the price of main products of the ethylene unit also suffered losses. From January to February, the operating rates of some crackers inched down. The supply was affected by cost pressure, which also lent certain support to the butadiene price.
Unexpected shutdowns stimulated the butadiene market price.
In January, the public health event hit the northern region, and the unit in South China was shut down temporarily. In February, the butadiene units in South Korea were cut the operating rates or shut down, driving up China’s butadiene market. In January, due to the public health event in the northern region, Sinopec Beijing Yanshan Company needed to purchase the butadiene resources from the market. Thus, the spot supply of butadiene once tightened, driving up the butadiene market price.
Besides, the butadiene unit in South China was shut down briefly and cut the operating rates, lending certain support to the players’ sentiment. Most traders were reluctant to sell at lows, and the negotiation price of butadiene went higher overall. In February, affected by the Spring Festival holiday, downstream demand was average. Yet, after the holiday, some foreign units took maintenance, bolstering some players’ sentiment, and low offers were hardly seen in the market. In early February and late February, the butadiene units in South Korea were shut down unexpectedly, strongly bolstering domestic players’ sentiment. On the day of units’ shutdown, the price of spot butadiene hiked notably, driving up the overall butadiene market price.
On the whole, although the support from the fundamentals was limited, high cost and unexpected shutdowns strongly pushed up the market price of butadiene after the Spring Festival holiday. Players’ sentiment and expectations had great impacts on the market.
In March, China’s butadiene supply and demand fundamentals will improve from February. The support from the cost will continue to be strong. Under favorable fundamentals, SCI reckons that China’s butadiene market will continue to gain ground. Yet, players should pay close attention to the price increase duration and impacts from unexpected market status.
All information provided by SCI is for reference only,which shall not be reproduced without permission.
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