Global Butadiene Derivatives Market Report
Tight C4 Supply Limits Robust Demand
Global butadiene consumption is estimated to have grown by more than ten percent in 2010, from a trough last year. The industry has seen volatility in both butadiene markets and prices over the past few years. Prior to the recession the butadiene market was extremely tight especially during the first three quarters of 2008, with prices under pressure from strong demand and short supply. Demand then dropped dramatically, as sales collapsed in automotive sector and to a lesser extent construction sector. Since that time an unexpectedly strong pick up has been seen in the automotive and replacement tyre sectors starting in the second half of 2009, supported by a strong rebound in Asian markets.
The supply/demand picture has been reflected in pricing. The South-East Asian butadiene spot prices plunge from a peak more than $3 000 per ton in the third quarter of 2008 to less than $600 per ton only six months later. As demand started to recover in the second half of 2009, extreme tightness in butadiene markets was swiftly reflected in a price premium over other olefins.
During the global financial crisis, consumer purchases of new cars came to a virtual standstill, and the automotive industry saw a massive destocking across multiple supply chains including that for synthetic rubber. Even the relatively stable replacement tyre (RT) market saw a considerable reduction in demand as consumers postponed servicing and fitting replacement tyres. The subsequent recovery in butadiene demand has been accelerated not just by growing increasing vehicle production, but also by the return of RT demand.
In 2009, China became the largest automotive producer in the world, ahead of both Japan and the United States. More significantly still, vehicle production in China grew by almost 50 percent when compared with the previous year, at a time when global production reduced by 14 percent. Asia now accounts for around half of global automotive production, a large increase from around 30 percent of total production in 2000. Tyre manufacturing is capital and labour intensive, and the Asia Pacific region also benefits from being the major producer of natural rubber – the other main raw material in tyre production. The relocation of automotive and tyre manufacturing facilities to developing countries has resulted in an imbalance in the butadiene chain, particularly in North America, with the United States currently having a large synthetic rubber capacity overhung. While the supply overhang is driving increased exports of synthetic rubbers from the United States, the competitive positioning of this export material is threatened by a weak upstream position.
The export of synthetic rubber from the United States to Asia is being matched by a new flow of low cost commodity tyres from China to the west. Several schemes have emerged which will have the effect of either directly or indirectly protecting tyre producers from this new supply. The U.S. government announced the imposition of anti-dumping tariff for imported tyres from China starting in September 2009. Chinese imports increased dramatically a few months before the imposition, then declined significantly afterwards. Taking a different line, the European Union is bringing in new regulation controlling tyre labelling which will be advantageous for the types of high-performance, eco-friendly tyres produced in the region. Despite these barriers however Chinese exports have held up with tyres simply finding alternative markets to the U.S. and Western Europe.
Global GDP Growth vs. Butadiene Consumption Growth
The shortage of mixed C4 stream remains a serious constraint for butadiene supply. Previously, chronic oversupply of butadiene and mixed C4 resulted in limited investment in butadiene extraction. Ethylene capacity growth in recent years has however been focussed in the Middle East, and brought negligible new butadiene supply. The switch to lighter cracker feedstocks globally has also been reflected in a shortage of butadiene. The resurgence of competitive gas based steam cracking in North America will maintain pressure on supply of this critical C4 stream.
Most new crackers in China are being equipped with butadiene extraction units, and some are even further integrated downstream to synthetic rubber. Butadiene from new steam crackers in China and others in India accounts for the majority of global capacity development. Capacity in the Middle East is advancing slowly however, partly due to higher labour costs in the region which make local tyre production significantly less competitive. The downstream side is therefore likely to trail production developments, and some materials available from new liquid crackers will be exported as butadiene or rubber.
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