Hamburg, (Germany): Butadiene prices have been stable or hovering at a slight lower end across the European market since the first week of August 2024. This price drag pointed to a slowdown in buying interest and a gradual ease of upstream cost, casting a shadow over the market outlook. Even though surging freight rates have still provided the markets with robust cost support, sellers have failed to raise their offers due to weakening supply-demand dynamics.

During the week ending on 2nd August, Butadiene prices declined by USD 11/MT in the German market. From the last few weeks, feedstock Naphtha prices have been decreasing followed by soft crude oil prices resulting in the low production cost of Butadiene in the domestic market, leading to a bearish market sentiment among the Butadiene manufacturers. Thus, prices of Butadiene FD Hamburg were settled at USD 1115/MT during the same time frame.

However, compared with last month domestic supply of Butadiene was observed on the lower end in the recent weeks due to low domestic operating rates and reduced imports from the Asian market. Furthermore, the fire that occurred at the BASF plant in Ludwigshafen, Germany has had a minimal impact on the Butadiene production. Moreover, Asia-to-Europe freight rates for material shipments continued to rise in July, with 40-foot container prices exceeding $8,000. High costs and limited container availability have resulted in a decrease in material exports from Asia, even though there are opportunities for price arbitrage. However, the current freight rates have slightly dropped by 1% to $ 8,369/FEU on 1st August. Additionally, rising labour tension in Germany and other European ports, caused port congestion to climb to an 18-month high, with further escalation expected due to labour strikes at German ports, causing omitted port calls and blank sailings.

On the other side, demand for Butadiene from the downstream Synthetic rubber and Polymer industry has continued to deteriorate in the domestic market amid off-season dullness which weighed down the prices of Butadiene. Also, consumption from the key end-user tire and construction sector has mainly been lukewarm thus reducing buying enthusiasm for several commodities including Butadiene. Furthermore, the spot market transactions were also average, with several buyers remaining on the sideline. Moreover, automotive parts and tire producer Continental has reported that vehicle production in Europe has dropped 6% to 4.3 million units in Q2 of 2024. Additionally, sales in the automotive sector dropped 3.4% to €5 billion, but the adjusted EBIT margin improved to 2.7% due to price negotiations and cost cuts while, the tires sector generated €3.4 billion in sales with a higher EBIT margin of 14.7%, driven by a strong tire-replacement business in Europe.

In the broader economic context, Germany's inflation up from 2.6% in June to 2.5% in July showing the continuing struggle of the eurozone’s biggest economy. The rise in the inflation rate has further diminished consumer sentiments. Moreover, the July figure could impact the European Central Bank's decision on whether or not to cut interest rates in September.

In the short term, ChemAnalyst expects prices of Butadiene might remain soft across the European market owing to weak cost support from feedstock prices. The demand for Butadiene from the downstream derivative industry is not likely to improve any time soon amid the null season. However, the supply of Butadiene is expected to remain tight initially due to supply disbalances but there is an expectation that the supply of Butadiene might improve after the mid-Q3 of 2024.