Bleak Downstream Demand and Sufficient Supply Drive Down European Butadiene Prices

After witnessing stagnancy in the past weeks, Butadiene prices have demonstrated a downward trend across the European market due to bearish buying sentiments in the region. The weak feedstock costs and volatile energy prices have further weighed down the prices of Butadiene in the regional market.

During the second week of October 2023, prices of Butadiene showcased a marginal decrement of 1.2% in Europe's largest economy, Germany. The cost pressure from feedstock Naphtha was limited as its prices settled on the lower side in the given time frame. In addition, crude oil prices, which had risen to the high $90/barrel in late September for benchmark Brent in the wake of the production cuts by Saudi Arabia and Russia and supply tightness fears, have relaxed since then and falling around $12/barrel in the space of few weeks however oil prices have gained pace in the immediate wake of the Hamas attacks and retaliatory Israeli missile strikes but lost most of those gains over the week, and fell back to the $80/barrel, despite some uplift from hopes of an end to interest rate hike in the US. The Purchasing Manager Index for Germany has been declining, and the same can be seen in September 2023; however, the magnitude has slowed, indicating a minor improvement in manufacturing activity in the domestic market.

On the demand front, the inquiries from the downstream Synthetic rubber (Nitrile-Butadiene Rubber, Styrene Butadiene Rubber, Polybutadiene Rubber) along with Polymer (Acrylonitrile Butadiene Styrene) have remained inactive as consumption from the end-user automotive and construction sector have mired, mirroring slowing consumers spending amid high inflation. According to data from the KBA Motor Transport Authority, new car sales were down slightly 0.1 percent to 224,502 in September 2023. This marks the first decrease in car registration since January, as the preceding months had seen strong automotive sales amid improved supply chain conditions and financial incentives. The decline in automotive sales during September can be attributed to the plunge in the sales of electric vehicles after the discontinuation of an environmental subsidy for commercial buyers, which had previously retained electric vehicle adoption. As per the sources, sales of fully electric cars reduced by 35 percent to 47,097 during the same time frame. On the other side, the performance of the construction industry has been unable to recover. As per the latest data, the manufacturing Purchasing Manager Index substantially dropped from 41.5 in August to 39.3 in September, reflecting a September output for the construction industry that has declined further. Hence, as the sales of automobiles and construction declined, the demand for Butadiene reduced along with its prices.

On the supply side, the manufacturing firms were operating at reduced rates as demand from the downstream industry had not fully recovered in the domestic market. Meanwhile, imports from the Asian market have remained steady in the German ports amidst a decline in the freight charges on European trade routes. The availability of finished stock of Butadiene was enough to cater to overall downstream demand. As a result, prices of Butadiene FD Hamburg were offered at USD 725/MT during the week ending 13th October 2023.

Overall, demand in Europe is likely to remain bearish until the end of the year 2023. Therefore, ChemAnalyst predicts that it is challenging for Butadiene prices to sustain an uptrend. The arrival of previously secured import cargoes might also put a cap on a further rise in the regional market.