Big changes expected in butadiene market.

According to the petrochemical consulting firm Chemical Market Associates, in its recently completed 2005 World Butadiene Analysis, the global butadiene markets are undergoing a period of significant change. Historical trade patterns and pricing relationships are shifting and geographic areas that historically have not been significant players in the butadiene market are beginning to play key roles.

The region with the fastest demand growth for butadiene is Northeast Asia, says CMA. Currently, the most significant butadiene consuming regions of the world are North America, west Europe and northeast Asia with 27%, 22% and 36% of global demand, respectively. However, in 2009, North America, West Europe and northeast Asia will account for 24%, 20% and 39% of global demand, respectively. The rapid growth of tire and rubber goods production in northeast Asia, particularly China, both for domestic consumption and export, is causing rapid growth in demand for synthetic rubber, and its primary feedstock butadiene.

Historically, the Middle East has not been a major player in the global butadiene market. However, CMA forecasts that the Middle East will go from representing about 12% of global exports in 2004 to nearly 25% of global exports in 2009. As a result, the Middle East will become the world's largest butadiene exporting region in the world, the study says. In addition, South America and Southeast Asia will see significant growth in butadiene consumption, and India will become a significant global player in both butadiene and synthetic rubber.

The location of existing and future butadiene extraction capacity will be critical to meet demand growth in synthetic rubber (polybutadiene and styrene-butadiene), nylon (via adiponitrile), and ABS (acrylonitrile-butadienestyrene) markets. In North America, butadiene extraction capacity is expected to operate below maximum rates, constrained by the limitations of affordable feedstock and local demand.

In Northeast Asia, expansion of existing butadiene extraction capacity beyond what has currently been announced is needed to maintain reasonable extraction operating rates and secure the supply chain of the rapidly expanding butadiene derivative markets.

In west Europe, butadiene extraction units will be required to run at high rates to supply slowly growing domestic demand and take advantage of high netback export sales where possible.

Butadiene has been trading at over $750 per ton in the U.S. and Europe, and over $1,100 per ton in Asia, the highest level in two decades. Expectations for lower underlying energy prices and additional production capacity in Iran, India, China and Taiwan will contribute to easing butadiene prices over the next two years. However, lack of any firm commitments to construct additional butadiene extraction capacity will cause butadiene prices and margins to rise sharply again by 2007-2009, CMA says.