PPE Program - Butadiene Market Dynamics
The markets for butadiene and synthetic rubber have emerged from a long period of oversupply, leading to record prices and margins in 2006. Butadiene prices broke the $1,500 per ton level in Asia in late 2006, almost six times the lowest prices seen in the late 1990s. At the same time, margins for West European producers reached over $400 per ton, despite the prevailing high feedstock prices. The current high global operating rates are set to last through 2007 and 2008, before dropping off due to major capacity additions.
The Asian market has been particularly active for butadiene due to the ongoing development of automotive and tyre production in the region which drives demand, and the major steam cracker developments which drive supply. The Asia Pacific region has accounted for over half of global capacity and demand growth over the past five years, and will account for three quarters over 2007-2011.
Major steam cracker developments in Asia will provide more mixed C4s for butadiene production, leading to a decrease in operating rates. In the long term, the growth of ethylene production, and therefore the availability of C4s, will exceed demand growth for butadiene, leading to increased reprocessing of steam cracker C4s. Countries such as China are expected to extract enough butadiene to serve their own derivative requirements, and hydrogenate then recycle the remainder back to the steam cracker.
The latest butadiene and derivatives report published by ChemSystems in December 2006 investigates the market and growth profile of butadiene and all major derivatives, and details the expected plant developments.
The report finds that the operating rates will remain above 85% until 2009, when major capacity additions and slower demand growth will cause a decline towards a trough in 2011. Global butadiene growth has averaged 3.3 percent per year from 1995-2006, but is expected to average only 3.1 percent over 2006-2015. Global consumption of butadiene is expected to increase from 10 million tons in 2006 to 13 million tons by 2015. New capacity developments are focussed on conventional extraction from steam cracker mixed C4 streams. The current high margins on butane dehydrogenation are expected to be temporary and not likely to encourage new investment in this technology. The tendency towards heavier cracker slates in the Middle East is increasing the availability of steam cracker C4s for butadiene and derivatives. The scale however remains small relative to expansions in Asia . While currently growing rapidly from a small base, the Middle East is unlikely to build a major export position for butadiene and derivatives as it has in the ethylene chain.Butadiene Consumption to Grow below GDP
Global butadiene demand growth will be below GDP growth due to the maturity of the major markets in developed regions. Demand will remain highly cyclical as a result of the high level of exposure to the automotive sector.Global GDP Growth vs. Butadiene Consumption Growth
Butadiene is primarily consumed in the production of synthetic rubber, which is in turn mainly consumed in the production of tyres and other items for the automotive industry. The rapidly developing automotive manufacturing industry in Asia, particularly China, is one of the major drivers affecting butadiene globally.
The market for butadiene rubber is growing faster than that of SBR, in many cases gradually substituting for SBR, but also growing through its use in high-impact polystyrene (HIPS). ABS is the highest volume engineering polymer, with diverse applications in sectors such as automotive components and household appliances. SB Latex is used mainly as carpet backing and as a coating on colour printed paper. Butadiene is also consumed in the production of hexamethylene diamine (HMDA) via adiponitrile, an intermediate in the production of nylon 6,6.Major cracker investments in China are expected to provide sufficient mixed C4s to supply the growing demand for the production of butadiene and synthetic rubbers, allowing China to offset its major import requirement for synthetic rubber. The long term excess C4 availability is expected to promote the usage of BR, which is 100 percent butadiene, at the cost of competing products. BR usage can be increased in tyre formulations, substituting for emulsion SBR and natural rubber.
Demand in Asia Pacific accounts for 41 percent of the global total, and the proportion is forecast to increase. The growth in demand in Asia is driven by increasing availability, and the rapid growth in demand in derivatives to supply the booming Asian manufacturing sector. The markets in North America and Western Europe are large but growing at sub-GDP rates as a result of the mature automotive and manufacturing industries there.
Global Butadiene Demand, 2006
Global Capacity Development
Butadiene extraction capacity is concentrated in the major naphtha-cracking regions of Asia Pacific, North America and Western Europe. The development of ethylene capacity based on heavier feedstocks in the Middle East will increase butadiene capacity there, although the region is destined to remain small in terms of overall production. Capacity in Eastern Europe is expected to remain fairly flat as ethylene capacity in the region remains in excess of demand, and is not expected to increase significantly.
Global Butadiene Capacity
Supply, Demand and Trade
Global butadiene operating rates remain at well above average levels, but are expected to decline towards a trough in 2011 as major capacity additions are made during the forecast period of low demand growth. The increasing proportion of liquids based cracker developments will increase the availability of mixed C 4 feedstock for butadiene extraction at a rate greater than that of butadiene demand growth. This is expected to result in a greater proportion of mixed C 4 hydrogenation and co-cracking rather than over-expansion of butadiene extraction capacity. The limited amount of naphtha cracker capacity expansion in North America and Western Europe will govern the level of butadiene capacity development in these areas. No new derivatives will be based in areas where there is no additional butadiene availability, leading to a gradual concentration of activity in butadiene and derivatives in Asia.
Global Butadiene Supply and Demand
The report Petrochemical Market Dynamics: Butadiene and Derivatives is published by Nexant as part of its ChemSystems programs. Subscriptions to the programs are available from www.chemsystems.com. The report is also available to non-subscribers as a stand alone purchase for $13,500. For further details please contact Stewart Hardy at +44 207 950 1592 or at shardy@nexant.com.
©2007 Nexant, Inc.
