Supply Pressure Keeping European Butadiene Prices on Upward Trend

Hamburg (Germany): After experiencing a period of stagnation in the previous week, Butadiene prices have gained upward momentum across the European market during the second week of February 2024. The supply of Butadiene has decreased significantly over the past weeks due to reduced regional production along with diminished imports from the US and Asian markets, which have escalated the prices of Butadiene. In addition, demand from the downstream synthetic rubber industry has started to improve across Europe. Moreover, high energy and feedstock prices have further exacerbated the upward pressure on the prices of Butadiene.

In the German market, Butadiene prices have increased by USD 11/MT. The rise in Naphtha prices over the past two weeks has led to higher production costs for Butadiene in the domestic market. On the upstream front, international crude oil prices settled higher by about 6% on a week-on-week basis, driven by concerns about Middle East supply and tightening refined products markets. The settlement price for Brent crude futures stood at $82.19 per barrel, contributing to the rise in the overall domestic production cost of Butadiene. In addition, supply conditions were tightened, with low operating rates at production plants and some crackers experiencing outages, leading to limited spot availability. However, in the contractual market, concerns about tightening supplies were less pronounced, with market players expressing confidence in receiving their structural volumes from domestic producers or Asia and the US. As a result, Butadiene prices in FD Hamburg settled at USD 873/MT on February 9, 2024.

Apart from this, the Houthi attack on commercial shipping in the Red Sea region has further reduced Butadiene availability from outside Europe, with the disruption increasing voyage time and freight costs for cargoes to and from Asia and the US as shipping companies reroute around Africa to find safe passage. On the other side, the market was also disrupted by the resumed train driver strike in Germany on Jan 23rd, which also limited the movement of material across the inland market, as well as by vessel shortages that prevented significant transactional activity on the coast. Overall, tight supply continued to dominate the German Butadiene market, as outages and logistical disruptions continued to reduce consumers' access to the material.

Meanwhile, demand for Butadiene has presented mixed pictures in the domestic market. Inquiries from the synthetic rubber sector improved, with several producers noting an uptick in buying inquiries, supported by legislation to ban imports from Russia starting from July 2024 and also disruptions to imports from Asia, which are more competitive amid the ongoing Red Sea crisis. Although demand from other sectors such as polymers, notably adiponitrile and ABS, has remained lackluster, it has had limited impact on the prices of Butadiene.

According to ChemAnalyst, European Butadiene prices might increase in the coming weeks as market players restock inventories in anticipation of a further rise in demand from the downstream industry. The feedstock Naphtha prices are likely to increase, followed by strong crude oil prices, which will positively affect the production cost of Butadiene in the regional market.