Butadiene Derivatives Impacted by Automotive Crisis
The Butadiene sector has been severely impacted as the withdrawal of easy debt financing has caused new vehicle purchases to collapse. Even replacement tire purchases have been impacted as households reduced expenditure.
The butadiene and derivatives chain endured tumultuous changes in 2008, tracking the fortunes of the global automotive industry. The butadiene market was extremely tight through the first three quarters of 2008, due to strong demand, and short supply. The switch to lighter ethylene feedstocks globally resulted in a shortage of butadiene from steam cracker C4 streams. The market collapsed in the fourth quarter however, with prices tumbling from record highs, and operators drastically cutting back production at all stages in value chain. The cutback in production was both to avoid holding inventories as prices collapsed, and to adjust to a dramatic downturn in end-user demand for vehicles and replacement tyres.
Reduced consumer spending and confidence resulted in the delay of new vehicle and tyre purchases, and less miles travelled by private and commercial vehicles alike. Demand in 2009 has recovered slightly from late 2008, but consumption over the full year will be lower in many regions.
The relocation of automotive and tyre manufacturing facilities to developing countries has resulted in an imbalance in the butadiene chain, particularly in North America. Total vehicle production and tyre capacity in the region has gradually declined from a peak in 2000. This has widened the gap between the production capacity and demand for synthetic rubber, while the region is structurally short of mixed C4. The drop-off in sales and accompanying losses has accelerated the relocation of manufacturing facilities to low cost countries. 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 result is increasing exports of synthetic rubbers from the United States, although this position is increasingly difficult to defend due to the weak upstream position.
Upstream considerations have been brought into focus over the last two years. Previously, chronic oversupply of butadiene and mixed C4 resulted in limited investment in butadiene extraction. Ethylene capacity growth in recent years has been focussed in the Middle East, but has brought negligible new butadiene supply. Strong growth in the automotive markets globally however generated strong consumption, and the market was snapped tight in 2008 by a swing towards lighter ethylene feedstocks, which restricted butadiene feedstock availability.
Most new crackers in China will be equipped with butadiene extraction units, with some further integrated to synthetic rubber downstream. Butadiene from these new steam crackers in China and others in India accounts for the majority of global capacity development. The increase of capacity in the Middle East is advancing slowly, partly due to higher labour costs which make 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.
Butadiene Demand
In 2008, SBR is the largest end-use of butadiene, accounting for slightly less than one-third of total demand, followed by BR and SBL respectively. ABS, HMDA and other butadiene uses made up the remaining demand, accounting for 30 percent in total. Butadiene consumption is driven to a great extent by the automotive industry, which tends to give a very volatile growth pattern. Historically, BR grew faster than SBR, but this will change in the forecast due principally to the slow growth in HIPS market. Despite a freefall in the ABS sector last year along with electronics and automotive industries, ABS is expected to recover and continues to grow at high rates. Due to a cost advantage over the acrylonitrile process, demand into HMDA via butadiene will also grow rapidly as new plants start up in the United States and China. On the other hand, the growth of the SBL sector is forecast to moderate as a result of more efficient use in paper and carpet industries.
The Asian market has been particularly active in building new capacity of butadiene and butadiene derivatives due to the ongoing development of automotive and tyre production in the region. The relocation of automotive industries increased synthetic rubber demand through tyre production, while both ABS and HMDA will benefit from plastics demand in the Asian automotive sector. Additional global demand for butadiene in recent years was entirely focussed in Asia Pacific where significant new derivatives capacity built up, particularly in China and South Korea. In the outlook, the share of Asia Pacific demand will grow further from 45 percent in 2008 to 53 percent in 2015.
Global Butadiene Demand, 2008
The North American market has faced a steady decline over the last decade, while Western Europe has grown at sub-GDP rates as a result of the mature automotive and manufacturing industries in both regions. The Middle Eastern market is set to grow rapidly as new butadiene and derivatives complexes are developed to exploit C4 streams from the large heavy feed-slate steam crackers that are currently under development. Central Europe will also grow at a high rate in future due to the expected C4 availability from new ethylene production, and the development of derivatives capacity to serve demand locally and in Western Europe. The growth in Eastern Europe is, on the other hand, forecast to slow down owing the shortage of butadiene and the current surplus position of BR and SBR.
The emergence of major automotive markets in developing economies now outweighs the negative effect of the maturing markets in developed regions, and global growth rates are thus forecast at higher levels that those seen in recent years.
Tyre Market Developments
While the automotive industry is the main driver for tyre market, and hence synthetic rubber demand, new vehicle production, the market of original equipment (OE) tyre, is not the main outlet for tyre producers. Three out of four tyres sold are in the replacement market where drivers replace their tyres of existing vehicles. Demand for synthetic rubber is therefore highly related to mileage, tyre longevity and road conditions. Reduced consumer spending and mileages have resulted in delayed replacement tyre purchases. Nevertheless, the trend of increased concern about safety, and an improving economic situation through government stimulus packages are likely to support demand over the next few years.
Natural Rubber
High synthetic rubber costs have encouraged tyre manufacturers to increase the flexibility to swing between natural and synthetic rubber. The effect is mainly on the production of general purpose tyres, as there is less flexibility in the formulation of high performance tyres. Small producers tend to switch between the two rubbers to optimise the cost, while larger producers tend to maintain the stability of processes and products to maximise quality and consistency.
Styrene Butadiene Rubber (SBR) Demand
The tyre industry consumes 75 percent of the SBR produced globally followed by the mechanical rubber goods/automotive parts applications (19 percent of the market). Footwear accounts for only around six percent of the SBR market. The main use of SBR is in the manufacture of tyre tread, and consumption is forecast to develop in line with the automotive sector.
The production of auto tyres is increasingly competitive and cost sensitive. Consequently, the manufacture of tyres and other rubber goods has tended to migrate to lower labour-cost areas, depressing market growth in developed regions such as Western Europe, the United States and Japan. Exports of finished rubber goods, primarily tyres, from regions such as China to the United States and Europe have increased dramatically over the last five years, leading to the closure of a number of tyre plants in the importing regions. Flourishing automotive sectors in China, India, and Thailand have also increased demand in the Asia Pacific region.
Global SBR Capacity Additions/(Closures)
Butadiene Rubber (BR)
Approximately two-thirds of BR is consumed in tyre production, with a further quarter used as an impact modifier in high impact polystyrene (HIPS) production. Other applications consume only around eight percent of the BR market. As the main use of BR is in the manufacture of tyres, BR consumption is forecast to increase in line with the automotive sector.
Asia Pacific, North America and Western Europe are the major consuming regions for BR, with total consumption in these three regions accounting for more than 80 percent of the global total. China has surpassed the United States to become the largest consumer of BR in 2007. The combination of new tyre manufacturing and high impact polystyrene (HIPS) capacities in China has boosted demand for BR while some rationalisation of both capacities was seen in the United States.
Global Butadiene Rubber Capacity Additions/(Closures)
Acrylonitrile Butadiene Styrene (ABS)
Global ABS demand has been under pressure from inter-polymer competition, especially from polypropylene and lately polystyrene, which are competing particularly at the lower-specification end of the automotive sector. Recent development in high gloss polystyrene is a new threat for ABS for decorative parts. However, ABS remains the material of choice in most applications in the key electronics/electrical appliance sector, due to its mechanical properties, high gloss and processability.
Although ABS consumption is forecast to grow at slower rates over 2009-2018 after the recent economic downturn, it will be one of the key drivers for styrene market growth during the recovery of the economy, with long term sustainable growth supported by the electrical appliance and automotive sectors. Asia Pacific, particularly China will remain the largest consuming region with an increasing proportion of the global consumption. Central Europe is expected to grow to balance the slowdown in the Western Europe.
Regional ABS Consumption
Report Availability
The report “Petroleum and Petrochemical Economics (PPE) – Butadiene Derivatives Market Dynamics” is published by Nexant as part of its ChemSystems PPE program. Subscriptions or single copies of the report are available from www.chemsystems.com. For further details please email chemsystems@nexant.com. If you have any comments on the analysis, please contact Stewart Hardy ( shardy@nexant.com).
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