Weak demand offsets the impact of supply reduction, maintaining persistent downward pressure on the butadiene market recently.

This week, influenced by the signing of the US-Iran Memorandum of Understanding and news of the gradual resumption of navigation in the Strait of Hormuz, crude oil prices experienced a significant decline. This, coupled with persistently weak downstream purchasing sentiment and increased maintenance downtime among downstream units leading to a rise in available butadiene inventory, prompted butadiene suppliers to progressively offer substantial price reductions during the week. This dragged both mainstream supplier prices and market prices significantly lower. As of June 18th, the delivered price in the Central Shandong region (Luzhong) was 9,500-9,750 CNY/ton, while the ex-tank self-pickup price in East China was referenced around 9,600-9,610 CNY/ton. The drop in prices to low levels, along with some restocking demand ahead of the Dragon Boat Festival, generated limited follow-through demand, but overall downstream willingness to stock up remained weak.

Production margins within the butadiene chain continued to shift slowly downstream during this period, although the situation where production profits are highly concentrated at the butadiene end has not changed significantly. With downstream production costs declining, production margins have improved to varying degrees. Specifically, SBR (Styrene-Butadiene Rubber) and SBS have now recovered to relatively healthy profit levels, the loss margin for BR (Butadiene Rubber) has narrowed considerably, while ABS production remains in a significant loss zone. The decline in butadiene prices offers some help in alleviating weak downstream demand for butadiene. However, considering that some downstream sectors are in their traditional off-season, coupled with the lack of strong expectations for near-term improvement in end-user product off-take, it is anticipated that butadiene production margins will still need to be gradually transferred downstream.

Currently, among the main factors restraining further price declines for butadiene, passive downstream procurement and low willingness to stock up remain the primary reasons. This largely stems from the slow improvement in downstream production margins mentioned above, combined with the traditional off-season for some downstream sectors like ABS, which face high pressure from finished product sales. Looking ahead to the next cycle, the significant drop in butadiene prices will further reduce downstream production costs. This is expected to improve profit margins across most downstream industries, potentially driving a slight sequential increase in capacity utilization for synthetic rubber production. However, given the severe losses persisting in the ABS sector, significant improvement in its capacity utilization is unlikely. Overall demand is expected to increase only modestly.

Table 1: Weekly Capacity Utilization of Major Butadiene Downstream Sectors

Looking ahead, under the influence of the news regarding the signing of the US-Iran Memorandum of Understanding, the gradual resumption of traffic through the Strait of Hormuz will lead to a gradual dissipation of supply risk premiums for crude oil and downstream petrochemical products. Guidance from the cost side and export channels remains weak. However, considering that the domestic butadiene market has already fallen back significantly to pre-conflict levels, the dragging effect from this news is expected to be weak. Current market focus remains on the demand side. Combined effects of news such as the scheduled shutdown of the Tianchen Qixiang adiponitrile plant being moved forward to mid-June, new maintenance plans for Chimei in July, and the emergence of low-priced butadiene external sales resources in Northeast China have created strong market expectations for a further increase in butadiene spot circulation resources from late June to July. This is likely to sustain a bearish sentiment among market participants in the near term. Overall, against a backdrop lacking effective support from either the supply or demand side, the butadiene market is expected to show a slow, gradual downtrend in the short term. The delivered price in the Central Shandong region (Luzhong) is expected to operate within a range of 9,000-10,000 CNY/ton, with the market awaiting guidance from the recovery of end-user product demand.