Sources in the Northwest European butadiene market Friday said they are expecting a significant three digit drop in the July contract price despite a recent uptick in spot price levels.
FOB NWE spot price levels have moved upwards by up to $100/mt in the past 2 weeks, with a trader saying that FOB levels could be "$1,550/mt" this week. Prices have climbed as traders have been able to pick up June spot material for shipment to Asia where CFR China price levels have also risen from a yearly low of $1,850/mt June 8 to close at $2,270/mt Friday.
Despite this, weak fundamentals in Europe and a potential dislocation between European values and other regions has left European sources expecting a sharp fall in the July contract price.
The June CP was settled at Eur1,850/mt FD NWE ($2,323/mt) -- a fall of Eur400/mt compared to the May CP -- and one producer involved in the CP negotiations acknowledged that "people expect a fall".
A consumer and trader suggested that buyers may look for a larger fall in the contract price.
The consumer said: "We'll be looking for a similar fall to June," while the trader was even more bearish and said: "People will feel that a big drop in CP is required. The contract has been kept at such a high level and it makes no sense now".
European butadiene consumers have expressed fears that without another significant fall in the CP they will face competition from cheaper imports of derivative products such as styrene-butadiene-rubber (SBR).
One consumer said: "Demand is just not there and the worry for us as consumers is that butadiene derivatives are also much cheaper in other regions."
Spot ESBR prices in Europe for 1502 grade were seen in June at around Eur2,400/mt ($3,024/mt) but Asian-produced material for the same grade was seen offered at Eur2,300-2,350/mt. As a result, this was putting pressure on European SBR prices and in turn, producers and consumers said that they needed some relief from feedstocks in July.
"In order to revise prices down we need a Eur200-300/mt butadiene decrease," one SBR producer said. This was backed by traders who pointed to offers seen in Asia for 1502-grade ESBR at $2,500/mt CFR Asia. "Europe is still uncompetitive versus Asia and the US so there is some way to go," a trader said.
In addition to this, there has been an erosion in the energy complex over June to date, which has brought pressure on upstream prices.
When the June CP was settled on May 25, European open spec naphtha was priced at $830.25/mt CIF NWE according to Platts data. The market has since fallen $136.25/mt to be assessed at $694.25/mt CIF NWE June 21.
A trader noted: "The June contract is over $2,300/mt and naphtha is now below $700/mt. The CP needs a big correction."
