Introduction: Entering April, domestic butadiene and its major downstream products have shown a clear trend of retreating from high levels. This is primarily influenced by weakening domestic and export demand, as well as regional supply-demand imbalance pressures in Shandong and East China. However, as cost pressures on downstream industries ease, production profits have begun a slow recovery. It is expected that the issue of weak demand will see some alleviation in the future.

1. Butadiene Price Decline Outpaces Major Downstream Products

Judging from the price trends of butadiene and its key downstream synthetic rubbers, market prices for both have shown a clear and sustained downward trend since April. The decline in butadiene prices has been significantly sharper than that of downstream products. Based on representative market prices, the prices of butadiene rubber (BR) and styrene-butadiene rubber (SBR) have fallen by 8.99% and 9.89% respectively compared to the end of March. In contrast, the delivered price of butadiene in central Shandong (Luzhong) has dropped by 20.34%. The discount of butadiene prices relative to synthetic rubber product prices has been gradually widening.

2. Slow Recovery in Downstream Production Profits and Persistently Low Operating Rates Weigh on Butadiene Demand

The gradual decline in butadiene market prices in April is mainly attributed to the easing of the previously tight domestic supply-demand situation for butadiene. The weak demand stems from two key factors. Firstly, the pressure from high production costs in downstream sectors has not seen significant relief. Major downstream products like ABS and BR are still operating at a clear loss, with their theoretical production profits yet to turn positive, which significantly impacts their consumption of butadiene. As of the week of April 16th, the theoretical production profit for BR stood at -849 RMB/ton, an improvement of 1,751 RMB/ton from the week of March 26th, but its capacity utilization rate plummeted by 12.40 percentage points to 40.79%. The theoretical production profit for ABS was -203.6 RMB/ton, a substantial improvement of 2,387.4 RMB/ton from the week of March 26th, while its capacity utilization rate dropped by 2.30 percentage points to 60.30%. Although production profits have recovered in other downstream sectors, strong观望心态 (wait-and-see sentiment) persists due to expectations of eased military conflicts in the Middle East and a缓解 (alleviation) of tight raw material supply, leading to procurement mostly following rigid demand with price pressure. Overall, the low level of downstream capacity utilization negatively impacts the rigid consumption of butadiene and the supply-demand balance in North and East China, becoming one of the important reasons for the significant drop in butadiene prices in April. Furthermore, after signs of缓和 (easing) in military conflicts in the Middle East, enthusiasm from South Korea and Japan for negotiating远期资源 (forward resources) has weakened, leading to reduced demand from the export direction. Obstructions in export channels from East China have also加重 (exacerbated) market concerns about price declines.

3. Easing Concerns Over Domestic Supply Tightness Coupled with Ongoing Downstream Profit Recovery: What's the Market Outlook?

From the supply perspective, although there are planned shutdowns for butadiene and配套下游 (supporting downstream) units at Yangzi Petrochemical and Hainan Refining in mid-to-late May, and maintenance shutdowns at butadiene units of斯尔邦石化 (Sibur石化), Shenhua Ningxia Coal, and one unit at Shanghai Petrochemical will affect some available supply, the market remains cautiously观望 (watchful) regarding the recovery of cracking unit operating rates domestically and internationally after the easing of tight crude oil supply concerns. Expectations for another significant reduction in domestic supply are gradually fading. Regarding exports, considering South Korea's series of policy intentions to increase cracking unit operating rates and butadiene resource circulation, coupled with expectations of some European cargoes gradually arriving at ports, domestic butadiene resource export demand is expected to weaken significantly. The situation of high price differentials between domestic and international markets will gradually correct, and pressure for market prices to decline will likely persist. On the demand side, downstream sectors still exhibit some等待下跌情绪 (waiting-for-further-decline sentiment), with significant volume补货 (replenishment) at low prices not yet materializing. However, as butadiene supply prices and market prices continue to weaken recently, the issue of high production costs in downstream industries will be alleviated to some extent. The problem of significant production losses in the BR and ABS industries is expected to gradually修复 (recover) in late April, which should provide some提振作用 (boost) to the rigid consumption of butadiene in early May. At that time, the pressure from regional supply-demand imbalances domestically is expected to decrease. Overall, it is anticipated that butadiene market prices will continue to exhibit a weak and fluctuating trend. However, entering May, with incremental growth in rigid consumption, the pace of price declines may slow. Considering the uncertainty of news regarding Middle East military conflicts, there is an expectation that prices may stabilize briefly after declines before returning to a pattern of wide fluctuations.