The future degree of butadiene may rise

Reports suggest that butadiene experienced its sharpest decline in November 2012 since the second half of that year. Despite the current market exploration, as the ethylene cracking process upgrades, butadiene production is anticipated to become increasingly limited, potentially driving its future value higher. According to business club price monitoring, butadiene prices dropped from a peak of RMB 27,100 per ton earlier this year to RMB 12,000 per ton, representing a decline of over 55%. In November alone, the fall was as much as 20.61%. Xu Yuting, a chemical industry analyst from the Business Society, told reporters for the Securities Times that the drop in butadiene prices this year was anticipated. Weak downstream demand was the primary factor behind the sharp decline in butadiene prices. Reports indicate that butadiene's downstream products include styrene-butadiene rubber, neoprene, and other synthetic rubbers, with synthetic rubber being a key raw material for tire manufacturing. Presently, China's annual tire production makes up approximately one-fourth of global tire output, making it the world's largest tire manufacturer and exporter. However, the EU's official enforcement of the green tire labeling regulation in November dealt a significant blow. According to the regulation's standards, nearly half of the tires exported to the EU do not meet the requirements. The introduction of the tire labeling policy has severely impacted China's tire industry, affecting the upstream supply chain as well. Despite the current price of butadiene being close to its yearly high, Xu Yuting believes that the production cost remains between RMB 9,000 and RMB 10,000 per ton. This suggests there is still potential for further price drops. Even though butadiene prices have been falling, some industry insiders remain optimistic about the long-term prospects of the product due to its production process and capacity constraints. Liu Bing, the securities affairs representative for Qi Xiang Tengda (002408), stated that butadiene primarily comes from the by-products of naphtha cracking in ethylene production. To significantly increase butadiene production would require the establishment of a large-scale ethylene plant using the naphtha cracking method. Currently, only major petrochemical firms like PetroChina (601857) and Sinopec (600028) possess such capabilities. Therefore, butadiene production capacity is relatively stable, reducing the likelihood of oversupply. Additionally, new processes in North America and the Middle East involve cracking ethylene using shale gas and petroleum gas, cutting costs by nearly half compared to the current naphtha method. However, this new process does not produce butadiene as a by-product. Liu Bing predicts that butadiene production will become scarcer in the future as naphtha cracking ethylene methods are phased out. Qi Xiang Tengda successfully commissioned a butadiene project with an annual output of 100,000 tons in June this year, becoming a major contributor to the company’s third-quarter growth. The company's third-quarter report shows revenue of RMB 1.141 billion in the third quarter, a 69.9% increase; net profit attributable to the parent company reached RMB 131 million, up 21.1%. Zhang Weibao, a leading entrepreneurial analyst, noted that China currently relies heavily on imported synthetic rubber, with a low self-sufficiency rate. As domestic synthetic rubber production increases in recent years, it is expected to drive future demand for butadiene.