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The year 2019 was an interesting one for butadiene market
players, and in many ways not what we expected. The year was
defined by weak demand growth and a more comfortable market
balance, despite significant planned maintenance outages. There
were three main drivers that caused deviation from the 2019
forecast: automotive market weakness, seasonal strength of LPG
versus ethane as cracker feedstock in the US, loss of butadiene
extraction capacity because of the TPC accident. This accident did
not have a major impact on the 2019 market as it happened late in
the year.
2020 will present a continuation of some of these trends as well as
some additional challenges and opportunities to the market.
Butadiene Market Key Trends for 2020:
Global economic growth is expected to deteriorate slightly in
the key C4 markets of the United States, West Europe, and China
with IHSM cautiously optimistic about the economic situation and
outlook. Large ticket purchases, such as automobiles, are at
greater risk during high periods of economic uncertainty in these
key markets.
The Chinese economy will be a defining variable, it is expected
to drop slightly in comparison to 2019. This raises questions
regarding the strength of the automotive market and therefore
demand for tires, synthetic rubber, and butadiene.
Oil prices are likely to be fairly stable before easing in the
second half of 2020. Natural gas is expected to favor low prices
with natural gas-related commodities being advantaged over
oil-related commodities. This would seem to support a relatively
flat cost structure for butadiene production.
Ethylene crackers will continue to favor lighter feedslate. The
growing ethylene demand will primarily be supplied by increased
production in North American and China.
Crude C4 availability is unlikely to be a significant global
market driver. We do not expect crude C4 markets to be tight as
North America and China have additional ethylene production. This
will result in softer import demand affecting the price
differentials between the key regions.
Butadiene prices in the three major regions will be relatively
flat with a gradual increase. The combination of flat energy prices
and an improved supply/demand balance outlook drive the price
forecast. The increased butadiene production in North America and
China should put downward pressure on imports which is an
indication of a lengthening market balance.
What are the most significant forecast risks in 2020:
Unplanned outages for either ethylene crackers or butadiene
extraction units could cause significant market disruption. The
risk is especially amplified by the fact that in the US, the lack
of spare extraction capacity. The global market should still remain
well supplied, but there could be shorter term regional disruption
as deep water spot trade takes some time to respond to demand.
Energy price volatility, either upside or downside. It is
likely there is more downside risk than upside, although not by too
much. This could have an impact on ethylene cracker feedslates and
butadiene production costs.
Ethylene cracker feedstock deviations from the forecast. Right
now, this is most likely a North America dynamic. We expect the
potential market risk to be increased butane cracking. However,
ethane could also remain strongly favored. In this case, it would
seem that the market balance would be somewhat tighter in the US,
driving price differential between the US and West Europe higher.
This would lead to increased imports of butadiene and butadiene
derivatives.
Delays in start-up of new ethylene crackers in China where as
many as five new crackers are scheduled for this year. If there are
delays, the increased butadiene supply from China that is currently
expected to soften its domestic market, and even impact rest of
Northeast Asia through its potential exports, would be
delayed.
Global economic turmoil impacting butadiene demand. While our
economic forecasters indicate both upside and downside possibility
from their outlook, it seems that the butadiene outlook would be
more affected by downside deviations. Global recession is not in
our base case, but it is becoming an increasingly credible
alternate case.
