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H2 Outlook: US, Europe eyeing butadiene arbitage opportunities to Asia

Singapore — Traders in the US and Europe would likely continue seeking arbitrage opportunities to Asia in an attempt to sell excess butadiene supplies to a tight Asian market, market sources said.

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"The market [in Europe] is long and Europe relies on Asian market conditions," one trader said. "They [European producers] will need to reduce either production or prices."

Butadiene demand in Europe is also seen as bearish, following a 65-day turnaround at French adiponitrile (ADN) producer Butachimie, the largest butadiene buyer in Europe. The ADN plant at its Chalampe site will be shut between September 11 and November 11.

But it is unclear if Asia would be able to absorb arbitrage cargoes from Europe, should new capacity come online in the second half of 2019. Butadiene turnaround season is mostly due to end by December, while additional butadiene supplies are expected from new butadiene plants. Rising Iran supplies to China would likely curb China's buying appetite as well.

According to estimates, butadiene's production loss in Asia will be at 25,480 mt in July, 28,230 mt in August and 24,980 mt in September. Production loss is seen to ease in November and December because of fewer turnarounds during the period.

Two new butadiene units are due to start up in Asia. These two units are Malaysia PrefChem's 185,000 mt/year butadiene unit under its RAPID project and China Zhejiang Rongsheng's 200,000 mt/year unit. The exact startup dates for these units are still unclear. PrefChem does not have any butadiene downstream plants, which means the entire quantity from the new unit will be exported.

Butadiene from Iran would likely continue to head to China, amid the US sanctions on Iran. There has been an additional 11,000 mt monthly of Iranian spot cargoes available to China, reducing butadiene import demand from the country.

Meanwhile, the US butadiene market would be stable to weaker in H2. While the US-China trade dispute continues to fuel an automotive slowdown to several ethane crackers scheduled to come online in H2, there is little expected to stem the tide of ample supply outweighing demand.

"Butadiene prices in America and Europe are expected to continue being pressured as deficit regions will come to a self-sufficiency balance derived from the new butadiene capacities in Asia, and the new ethane crackers in the US that will keep well-supplied co-products such as CC4s needed to produce butadiene," one source said.

New ethane crackers to be started up this year do not have butadiene capacities, meaning more crude C4 is being supplied to the market.

Another source conferred with the expectation of downward pressure, even with planned outages in Asia. Sources said an unforeseen event would need to manifest in order to boost US spot butadiene.

"Under normal circumstances, for the rest of the year the market will be rather weak," the source said.

Bearish downstream synthetic rubber markets would likely pressure butadiene feedstock market as well, amid the ongoing US-China trade dispute. The trade tension particularly hit China's automobile sector, which consequently slashed synthetic rubber demand.

Europe is also seen to be following the bearish global trend. "(We expect) flat demand, and a progressively weaker tyre sector. The Asian market is closed for us," one producer said, adding that he foresees a bleak outlook for the rest of 2019.

So far in 2019, CFR China butadiene price averaged at $1,080.04/mt, FD Northwest Europe at $964.25/mt and CIF USG at $1,011.085/mt, according to S&P Global Platts data. While, styrene-butadiene-rubber price in Asia and Europe averaged $1,359.65/mt CFR Northeast Asia and $1,276.50/mt FOB NWE respectively, Platts data showed.

--Elizabeth Low, elizabeth.low@spglobal.com

--Luke Milner, luke.milner@spglobal.com

--MK Bower, moisekapenda.bower@spglobal.com

--Ora Lazic, ora.lazic@spglobal.com

--Edited by Nurul Darni, nurul.indriani.darni@spglobal.com