What Triggered the BD Price Slide?
In H1 of April, China’s butadiene price fell to a 10-year low. Sinopec cut the butadiene ex-works price to RMB 3,500/mt and the mainstream dealing price of butadiene hovered within RMB 3,600-3,700/mt, both hitting new lows since SCI’s monitored butadiene price. From mid-April, China’s butadiene price saw small increases, but the dealing of high-priced resources was still sparse. Thus, do multiple factors or supply increase trigger the drop in butadiene prices? The detailed analysis is as follows.
Limited units’ maintenance and the slow recovery of demand weigh on the butadiene price.
China’s butadiene units will take maintenance intensively from May. Thereinto, Shenhua Ningxia Coal Industry, Sinopec SABIC Tianjin Petrochemical, BASF-YPC, etc. will have maintenance plans. It is roughly estimated that China’s butadiene maintenance losses will be around 40kt, so the butadiene supply in May will drop notably from April. However, from May, there will be batches of imported butadiene resources arriving at East China port and the import cost is low, replenishing China’s butadiene market to some extent. Actually, the butadiene supply will drop by 10-20kt. Thus, as seen from the supply side, the decrease in butadiene supply will drive up the butadiene market price somewhat, but the overall upward extent will be narrow.
In terms of demand, the butadiene price drops to a low level at present, and most of the downstream enterprises have low-priced feedstock inventory. Besides, the operating rate of downstream industries is at a relatively high level recently. As global public health events are not controlled effectively, the end demand recovers at a slow pace. The inventory at some downstream enterprises will be relatively high. If the butadiene price increases, downstream users will mainly consume the inventory due to the slow recovery of demand in the short run. They will also show thin appetites for high-priced butadiene resources. Thus, the demand side will fail to bolster China’s butadiene market.
Newly added butadiene units will continue to increase domestic supply, so the butadiene price will hardly improve.
Most of the newly added butadiene units will go into production in 2020, with the total capacity of 780kt/a. For the time being, a total of 340kt/a butadiene units at Zhejiang Petroleum & Chemical and Hengli Petrochemical have been put into use. A total of 330kt/a newly added butadiene units at Sinopec-KPC Refining and Chemical, Sinochem Quanzhou Petrochemical, Liaoning Bora Petrochemical, etc. will be released in Q3, 2020. The butadiene supply will continue to increase. In Q3, the butadiene units’ maintenance in China will weaken. It is estimated that a 60kt/a butadiene unit at Sinopec Shanghai Petrochemical will take maintenance. Besides, ChemChina Puyang Bluestar New Material, Shanghai Secco Petrochemical, Sinopec Beijing Yanshan Company, etc. will also take their units for maintenance. As some of these units belong to upstream and downstream integration units, the units’ maintenance will have a slight impact on the butadiene market. If these newly added butadiene units will be released as scheduled. The butadiene resources will be more sufficient in the market.
However, as seen from downstream industries, the overall newly added units will be limited. Although Hangzhou Yibang Rubber and Shouguang Fenghui New Material plan to start up as the processing profit improves, the commissioning time of some newly added will be postponed. Thus, the demand release is not as good as expected, which will weigh on the pressure of domestic butadiene supply.
As a whole, it is normal for China’s butadiene price to drop to a low level. The imbalance between supply and demand is not alleviated, and the market price of butadiene will trend at lows for a long period. At present, affected by the global public health event, the demand is almost stagnant in the globe. However, the operation of upstream units is slightly limited. The global oversupply will continue in the butadiene market. The butadiene price increase will still be under pressure.
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