Asia butadiene hits 15-month low, flipping butadiene-naphtha spread to negative

The Asian butadiene-naphtha spread flipped to negative territory at the Dec. 10 Asian close, S&P Global Platts data showed, as demand for naphtha was boosted slightly by increasing propane costs, while butadiene was bearish amid a falling domestic market in China, under pressure from rising inventories.

Platts assessed CFR Japan naphtha at $703.125/mt Dec. 10, up $33.625/mt week on week, while CFR China butadiene was at a 15-month low of $670/mt. Butadiene prices were last lower at $650/mt on Sept. 10, 2020.

This flipped the spread between CFR China butadiene and CFR Japan naphtha physical to negative at the Dec. 10 Asian close, slumping $163.625/mt week on week to minus $33.125/mt.

The spread was last negative at minus $1.625/mt on Oct. 19, Platts data showed. The typical breakeven level for butadiene produced with feedstock naphtha is $250-$300/mt, according to market sources.

With US and European butadiene markets slowing down toward the year-end holidays and showing reluctance to procure longer arrival Asian-origin cargoes, Asian exporters may continue to face a buildup in inventories and be pressured into reducing prices to manage stock levels, market sources said.

Asia's demand may also slow down, with end-users in China wary of building up inventory levels toward the year-end, the sources added.

Meanwhile, naphtha demand rose slightly as propane prices increased.

Currently, naphtha remains a more economical feedstock than LPG, as the physical spread between CFR North Asia propane and CFR Japan naphtha widened $29.75/mt day on day to $23.375/mt at the Dec. 10 Asian close, Platts data showed.

With LPG now commanding a premium over naphtha, it is economically unviable to use LPG as an alternative steam cracking feedstock, and more steam crackers are expected to maximize the use of naphtha.

The CFR Japan naphtha physical crack spread against front-month ICE Brent crude futures strengthened $15.775/mt week on week to $146.175/mt at the Asian close Dec. 10, Platts data showed.

Butadiene production yield from naphtha cracking was 0.04, while that from alternate feedstock LPG was lower at 0.01-0.03, according to market sources.