Global butadiene demand is likely to turn the corner in the first half of 2023, with prices seen rising and export opportunities to the US set to emerge despite nagging fears of a recession.
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Butadiene prices globally have been depressed in 2022 amid global economic headwinds, but plant turnarounds in the US -- which would trigger export opportunities from Europe to the US -- as well as limited outflows from Asia may buttress the case for more resilient demand in 2023.
US demand may improve amid turnarounds
In the US, two large butadiene producers plan to shut for turnarounds in Q1 while a third key producer is expected to be out of the market in Q2, limiting the availability of product in the region.
"There are some supply issues in the US so that means there is an outlet for European cargoes to go to the US in Q1. I think everybody is expecting the first half of the year to be much more depressed and gradually become better in the second half. It will be correlated to the economy," a butadiene producer in Europe said.
European export prices crashed towards the end of 2022, as sellers desperately looked to other regions to place excess volumes.
With the arbitrage wide open to the US as the new year starts, traders will be keeping a close eye on export opportunities due to the planned turnarounds.
The US is expected to receive more imports from Asia, Europe as well as Brazil, a frequent exporter to the US. Since 2021, the US has seen a heavy influx of Brazilian, European and Asian cargoes, filling supply gaps in the domestic market, especially when domestic producers had limited availability due to turnarounds and maintenances.
However, US butadiene import prices are expected to be capped by limited domestic consumption and wide international supply in the first half of 2023, as well as lower feedstock costs.
"Everything is really slow right now. I'm betting the spot will follow the contract price soon. I think the demand is picking up a little bit on the C4 side though," said a market player in the US.
"Turnarounds may result in an increase in demand for local C4 as I've had a few parties looking to purchase for the upcoming months," the source said, adding the price may see an uptrend if supply becomes an issue in the near future.
Cracker runs remain lower in Europe, Asia
In Europe, the supply and demand imbalance is expected to continue for most of H1 despite producers operating at reduced rates, as downstream demand continues to underperform in the region.
In Asia, market participants expect overall supplies to remain heavy despite expected lower steam cracker operations, as new butadiene plants are due to start up in Asia in H1.
An interest to move cargoes to the US may remain in H1 in Asia, but lower steam cracker operations, as well as high freight costs may limit such opportunities.
Downstream sentiment remains gloomy
Despite the positive cues, downstream players in Europe witnessed demand for key butadiene derivative -- such as SBR, ABS and adiponitrile -- decline across the final quarter of 2022, as recessionary fears across Europe pushed consumers to cut down on purchases of discretionary and high-ticket items, while high input costs stemming from Europe's energy crisis impacted the competitiveness of derivatives produced in the continent.
And without an imminent solution to deal with Europe's energy needs, the picture remains gloomy for the downstream market.
In the US, sources believe the market activity in Q2 2023 will depend on the renewal of consumer interest.
"If the market continues tracking lower and producers return from their maintenances, supply will be more than sufficient making prices drop again," a regional trader said.
Spot demand in Asia may pick up at the start of next year as cracker owners rush to fill supplies.
Asian steam cracker owners were heard planning to keep operations lower for 2023 -- possibly an average of 70%-80% -- which would likely limit spot exports from key producers, such as South Korea.
"Because of planned operating rate cut, the producers do not have much export quantity as they need to supply their local customers," said a market source in Asia.
However, market sources said such demand in Asia would likely fade away quickly as China's buying appetite would remain scarce, in line with planned butadiene plant startups.
Market participants are also closely monitoring possible butadiene demand from China following the inauguration of a new 400,000 mt/year ADN, plant by Invista in Shanghai.
Butadiene is a key feedstock for ADN, which is further processed to produce nylon 6,6.
Market sources, however, said it is still unclear whether the new plant would run at full capacity as demand outlook for nylon 6,6 for auto-used airbags is seen depressed amid lower automobile factory operations in Asia.
Demand recovery in Asia also depends on China's COVID-19 regulations, as easing policy would help boost economic activities, which, consequently, would push chemical demand.