Lead: In mid-to-late July, the overall price center of China's butadiene market hovered around 10,500 yuan/ton, mainly due to a combination of factors such as the lack of bullish fundamentals on the supply-demand side and wide fluctuations in crude oil prices. It is expected that the butadiene market may show a weak and volatile trend in the short term.
In July, the operating rates of domestic butadiene downstream sectors were still in the process of recovery, but there were marked differences in the pace of recovery. The operating rates of cis-polybutadiene rubber (BR) and styrene-butadiene rubber (SBR) had gradually recovered to around the same levels as the same period last year, while those of SBS and ABS industries remained relatively low.
The production profit performance of each downstream segment directly reflects the reasons for the differences in operating rate recovery. At present, among butadiene downstream products, SBR and BR are generating notably better production profits than SBS and ABS. The main reasons for this discrepancy are, on the one hand, the tight availability of circulating resources for some SBR and BR brands during the month, which kept market prices firm and expanded production profitability; on the other hand, the SBS and ABS industries are still in the off-season for end-user demand, leaving insufficient upward momentum for market prices. In this context, as the impact of the Middle East conflict on crude oil prices transmits down the chain, SBR and BR products are less sensitive to rising feedstock prices than SBS and ABS. Overall, constrained by the uneven distribution of downstream production profits, and with the operating rates of the synthetic rubber downstream sectors having recovered to normal levels, the near-term domestic demand side is expected to see limited incremental growth.
From the supply side, as domestic butadiene units that were under maintenance gradually resume operations, domestic butadiene output has basically returned to the level seen in the same period last year. Although spot resources in North China may remain slightly tight in the near term, with a relatively ample supply of sellable resources in East China, the domestic supply increase is expected to be limited. On the international front, although the supply risks to crude oil and naphtha arising from the Middle East conflict have not been completely eliminated, the spread between Japanese naphtha and butadiene CFR China has fallen back to slightly below the normal level, which further confirms that domestic resources are relatively sufficient in the short term. Overall, the domestic supply side is unlikely to provide a strong boost to butadiene prices in the short term.
At present, the recent pullback in crude oil and naphtha prices has slightly loosened cost support. After prices fell to around 10,000 yuan/ton, some end-users made small purchases in follow-up, but they still hold a wait-and-see attitude expecting further declines. On the demand side, given that the operating rate of the main downstream synthetic rubber segment has already run at a high level, while other downstream sectors are recovering production profits more slowly, incremental rigid demand consumption is expected to be limited. On the supply side, with fewer domestic butadiene units under maintenance and ample sellable resources in East China, the supply side overall lacks positive catalysts. In summary, butadiene prices are under some short-term pressure, and sellers may gradually concede profits to test shipments. However, given the considerable uncertainty surrounding the Middle East conflict, room for further declines is expected to be limited amid cautious wait-and-see sentiment. The delivered price in central Shandong (Luzhong) is expected to trade in the range of 9,800-10,500 yuan/ton.
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