Butadiene: Consumption Sectors Less Favorable & Signs of Oversupply Appear

By Tan Jie, Sinopec Maoming Petrochemical Research Institute

Production

Butadiene capacity in China has expanded steadily in recent years due on one hand to a growing supply of pyrolysis C4 from newly built or expanded ethylene units and on the other hand to rapidly growing demand from the synthetic rubber and resin sectors. As butadiene comes mainly from C4 extraction units, most butadiene producers are subsidiaries of Sinopec and PetroChina. In 2016, the combined butadiene capacities of these two companies amounted to 2.832 million t/a, or 72.36% of all domestic capacity. Sinopec has 1.691 million t/a (43.2%) and PetroChina has 1.141 million t/a (29.15%). CNOOC’s capacity is 0.165 million t/a (4.215%), and other producers have 0.917 million t/a (23.43%). PetroChina Daqing PC has the biggest butadiene capacity, 0.231 million t/a, followed by PetroChina Jilin PC, 0.23 million t/a.
In recent years, China's private enterprises have completed many sets of SBR and BR plants and put them into operation. In order to satisfy their demand for butadiene, Shandong Qixiang Tengda Chemical, Shandong Yuhuang Chemical and Shandong Wanda Chemical have built several butadiene plants using the butene oxidative dehydrogenation route, forming in China a new production pattern with four major players: Sinopec, PetroChina, CNOOC and privately owned companies/JVs. In 2016, China’s C4-extraction butadiene capacity was 3.334 million t/a, about 85.15% of the total, and butene-oxidative-dehydrogenation butadiene capacity was 0.58 million t/a, 14.82% of the total, all operated by privately owned companies in Shandong.
Many Chinese butadiene producers have PBR, SBR, NBR, SBC or ABS resin units, so most butadiene produced in China is consumed domestically and export volumes are small. Most butadiene plants are situated in places with concentrated ethylene production, namely East China, North China and South China.
China’s butadiene output cannot meet domestic demand, leaving China a net importer of butadiene. In the last five years, China has experienced increasing and then decreasing in butadiene import, according to customs statistics. Import volumes increased from 2011 to 2013, and then started to fall in 2014 due to the expansion of domestic capacity. The import amount in 2014 dropped to 202 700 tons and the number in 2016 was 273 300 tons, a fall of 1.62% YoY. Imports hiked once in 2015 because the crude oil price was low and the production of naphtha cracked ethylene increased, together with that of butadiene, and demand grew in 2015 too.

Consumption

Due to the stable development of China’s synthetic rubber industries, the apparent consumption of butadiene has been growing: from 1.1302 million tons in 2005 to 2.0994 million tons in 2010, with a 16.45% YoY growth. Apparent consumption reached 2.8233 million tons in 2016, growing 1.74% YoY. China’s self-sufficiency for this product was 88.04% in 2005, 94.6% in 2010 and 90.32% in 2016.
The major uses of butadiene in China are the manufacture of BR, SBR, SBC and ABS resin, taking respectively 30.6%, 27.0%, 18.0% and 16.3% of the total.
After implementation of the standard for new compounded rubber, the tire companies have to update their production formation or use highly taxed imported natural rubber. Tire production costs are bound to rise, and these tire producers’ profits will be squeezed. Meanwhile, “double anti” sanctions from the USA dampen tire export. So China’s tire industry development will slow down in the next few years. Hence, butadiene consumption by makers of SBR and BR will decrease.
SBC production is increasing steadily, but many low-priced substitutes are still being used. SBC’s expansion will be restricted in the future, and its contribution to butadiene consumption growth is limited. The development of ABS has slowed down after several years’ rapid expansion. Most domestic ABS products are general purpose, and high-end products are imported. Makers’ consumption of butadiene will be stable.
Generally, the rapid expansion of butadiene’s downstream industries has passed, and the industries have entered a stable period to utilize surplus capacity. Demand for butadiene in China will likely be 3.1-3.15 million tpy by 2020.
Riding slumped rubber markets and very low crude oil prices, China’s butadiene market prices will fluctuate heavily. The market already witnessed prices hike to RMB 24 450/t in January and February 2017, a record high since 2013, and then started to drop in March after demand slowed and the supply became ample, and finally decreased to RMB7 960/t in June.

Development trend

Many companies plan to build or expand their butadiene plants in coming years, including Bluestar (Tianjin) Chemical (Puyang) Co., Ltd., Qingdao Soda Ash Industry Co., Ltd., Inner Mongolia Jiutai Energy Co., Ltd., Jiangsu Sailboat Chemical Co., Ltd., CNOOC Huizhou Refinery’s Second Phase, Sinochem Quanzhou Petrochemical’s Ethylene Project, and Sino-Kuwait Refinery Project in Zhanjiang, Guangdong. Most of these companies plan to adopt the butene oxidative dehydrogenation route and most have downstream units too. However, as the already launched butadiene plants using the butene oxidative dehydrogenation route are now producing at high cost and low utilization, the future of these plans are still unclear. By 2020, China’s butadiene capacity will likely reach 4.5 million t/a while demand will only be 3.1-3.15 million tpy. The oversupply will cause fierce competition.
Compared to the mainstream C4 extraction process, the butene oxidative dehydrogenation route has problems of high cost and unstable technology. Moreover, the supply of feedstock n-butene might be short, so its price might increase, meaning that C4-extraction butadiene will still dominate the market in the next few years. As for consumption, synthetic rubber makers will still be the major users of butadiene. As China’s economic development enters a new period of slower growth, the butadiene market will keep stable with little possibility of huge fluctuations.