Hamburg, (Germany): Despite the persistent sluggishness in buying sentiments, butadiene prices across the European market have witnessed a fresh round of increases. Manufacturers are pointing to rising upstream and freight costs, as well as reduced import availability, to justify their attempts to hike prices. In addition, the Red Sea crisis shows no sign of abating, with air and sea strikes by the US and UK on Houthi targets in Yemen deepening maritime logistics problems, further affecting the pricing dynamics of several commodities, including butadiene.

After experiencing a period of stagnancy in the previous week, butadiene prices have shown an increment of USD 16/MT in the German market during the last week of January 2024. The raw material naphtha prices have increased this week, resulting in the high production cost of butadiene within the domestic market. On the upstream front, international crude oil prices increased by more than 1% on January 25, 2024, buoyed by a larger-than-expected US crude draw, Chinese stimulus, and continued attacks by the Houthis in and near the Red Sea. The high crude oil prices have increased the overall production cost of butadiene in the domestic market. Additionally, the US and the UK launched further attacks on the Red Sea, adding to the already high level of tensions there. This might surge the overall risk sentiment in the oil markets. Regarding domestic production, manufacturing firms operated at reduced rates due to weak consumption from the downstream industry. Although the German Manufacturing Purchasing Manager Index increased from 43.3 in December to 45.4 in January 2024, it still indicates below-par performance, indicating a contraction in new orders and output.

Meanwhile, imports from the US and Asian markets have slowed down in the German ports due to supply interference brought on by the unrest in the Red Sea and prolonged drought in the Panama Canal, which in turn led to high shipping costs and delays. Market players reported that the availability of finished stock of butadiene was limited due to low domestic production and uncertainties about lingering logistic mishaps and emerging risks, keeping prices of butadiene on the edges for the long run.

However, demand for butadiene from the downstream synthetic rubber and polymer industry has remained lackluster amid macroeconomic headwinds and low seasonality. The consumption of synthetic rubber and polymer from the automotive and construction sectors has not improved yet in the domestic market. Although it had a minimal impact on the prices of butadiene. According to data from the German auto association VDA, German car sales are lagging behind the recovery in the global passenger car market, with 2024 car sales projected to be 25% below pre-pandemic levels, consequently impacting the demand for butadiene. As a ripple effect, prices of butadiene FD Hamburg were offered at USD 862/MT during the week ending January 26, 2024.

ChemAnalyst anticipates that European butadiene prices might rise in the upcoming weeks as feedstock naphtha prices might remain bullish, followed by strong crude oil prices. Despite this, the demand for butadiene from the downstream industry is not likely to improve any time soon. Meanwhile, geopolitical uncertainty and disruptions to shipping will continue to be a headwind for the global economy. The shipping and supply chain disruptions fuel the fears of inflation, throwing another obstruction in front of central banks preparing to ease monetary policy.