Preface: In early July, the domestic butadiene market exhibited a pattern of a sharp decline followed by a rapid rebound. As of July 16, the butadiene price delivered to central Shandong (Luzhong) had surged to 10,725 yuan/ton, accumulating a total increase of 1,650 yuan/ton or 18.18% from the previous Thursday. The main drivers behind this significant price surge were, on one hand, the rising geopolitical tensions in the Middle East, which reignited concerns over potential supply risks for crude oil and downstream petrochemical products, and on the other hand, increased procurement demand from the key downstream synthetic rubber market coupled with heightened arbitrage activity.
In early July, the Chinese butadiene market halted its decline and rebounded. From April to June, prices of butadiene and other feedstock had gradually fallen, easing production cost pressures for downstream sectors and leading to a slow recovery in capacity utilization. Notably, production margins for cis-polybutadiene rubber (BR) and styrene-butadiene rubber (SBR) improved significantly, accelerating their capacity utilization recovery. Additionally, the SBS sector reported restart news for some previously shut units, boosting butadiene rigid demand consumption. However, the major downstream ABS sector still faced profit pressure and seasonal weakness, resulting in a slower capacity utilization recovery. Most downstream producers maintained just-in-time procurement, limiting the decline in selling pressure from suppliers. Entering July, a notable increase in synthetic rubber procurement demand drove a rapid short-term spot price uptrend. Meanwhile, butadiene prices were again supported by the potential supply risks from intensified Middle East conflicts. As of July 16, the Sinopec East China ex-works butadiene price surged to 10,500 yuan/ton, accumulating a total increase of 1,800 yuan/ton or 20.69% from the year-to-date low on July 2. The delivered price to central Shandong also rose sharply to 10,725 yuan/ton, accumulating a total increase of 2,225 yuan/ton or 26.18% from the year-to-date low on July 2.
Entering July, the circulation volume of some state-owned BR grades decreased notably, significantly boosting procurement willingness among private BR producers. As BR capacity utilization recovered and the butadiene-BR price spread widened gradually from 2,750 yuan/ton in early June to the 3,000-3,700 yuan/ton range, the attractive spread drew cross-commodity arbitrage demand. Furthermore, tight supply of SBR dry rubber spot products further pushed up synthetic rubber futures and spot prices, indirectly strengthening butadiene prices significantly.
Looking at the production profit and capacity utilization trends along the butadiene value chain, while butadiene production profits gradually declined, SBR and BR overall maintained good profitability. SBS production profits partially improved, while ABS production continued to suffer losses. These profit trends directly reflected in the capacity utilization performance of each product. As can be seen, although most sectors' capacity utilization has not yet returned to levels seen in the same period last year, the recovery pace of BR and SBR capacity utilization was significantly faster than other products. This has been the main driver of recent butadiene procurement demand. Considering the new capacity expansions in SBC products during the first half of the year and the gradual restart of some previously shut units, SBC sector consumption also showed a modest increase. Meanwhile, the other major downstream ABS sector still faces profitability pressure, with capacity utilization recovering very slowly. This remains an important factor affecting butadiene demand release and requires ongoing attention from market participants.
In the short term, the situation in the Middle East remains uncertain. Short-to-medium term crude oil price strength continues to support butadiene costs. Coupled with tight spot circulation of some synthetic rubber grades in the key downstream market, and the still-wide price gap between butadiene and synthetic rubber encouraging end-user procurement, sellers are actively supporting prices, making it difficult to find low-priced supply. However, with the restart of units at Wuhan Ethylene and Refining (Gulei) Petrochemical, and relatively ample resources in the East China region, supply-side guidance for the market is limited. Downstream end-users show strong resistance to high-priced feedstock, making high-level transactions difficult, which could cap the price rally to some extent. The domestic butadiene market is expected to fluctuate with a firm bias. The delivered butadiene price to central Shandong is forecast to operate in a range of 10,300-10,800 yuan/ton. Attention should be paid on one hand to the replenishment of resources at East China ports and the recovery of domestic butadiene supply, and on the other hand, careful monitoring of the replenishment of synthetic rubber spot circulation resources.
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