Market participants recently said that the new ethylene production capacity will increase the supply of carbon four raw materials, and the US butadiene production is expected to increase in 2019. The increase in supply will reverse the 2014 US butadiene price in 2019, creating growth opportunities for downstream derivatives markets and exports.
In 2018, there was a shortage of butadiene supply in the United States. The tight supply at the beginning of the year was due to the shutdown of the cracking unit and the insufficient import of carbon four raw materials. In the middle of the year, the supply of carbon four raw materials was limited due to the increased use of ethane raw materials in the cracking unit. With the commissioning of new crackers in March and July 2018, there was an excess of ethylene supply, which led to a sharp drop in ethylene prices. The sharp drop in ethylene prices has eroded the profitability of the cracker, prompting the cracker to use more ethane as a feedstock because ethane is the most economical ethylene feedstock.
For most of 2018, the strong trend in crude oil prices supported the price of heavy feedstocks such as naphtha, propane and butane, which affected the economics of US crackers using heavy feedstocks. In the middle of 2018, the proportion of ethane in cracked raw materials in the United States rose to over 75%, a significant increase from 60% in the same period last year. The decline in the profitability of the cracker also contributed to the decline in the operating rate of the plant. In 2018, two sets of crackers in the United States were forced to close due to economic reasons.
For most of the second half of 2018, the production of carbon four raw materials was limited, resulting in tight supply of butadiene in the United States. Coupled with strong demand from the downstream construction industry, the price of butadiene in the United States continued to rise in the third quarter after rising more than 30 cents/lb ($660/ton) in the first half of 2018.
Looking forward to 2019, an increase in market supply will cause prices to fall. At the end of 2018 or early 2019, some new cracking units will be put into operation in the United States, including new cracking units from Indama, South Africa's Sasol and Shin-Etsu Chemical. In addition, some new cracking units are expected to be completed and put into operation later in 2019. It is expected that the US ethylene production capacity will increase by about 6 million tons per year before the end of 2019.
As the capacity of the cracking unit increases, the production of carbon four raw materials will increase, although most of the new cracking units can only use ethane as a raw material, and the ethane-based cracking unit produces the lowest yield of by-products such as carbon four raw materials.
The successive commissioning of new crackers will lead to an increase in the production of butadiene in the United States, which will shift the US butadiene market from a traditional supply shortage to ample supply. The price of butadiene in the United States began to fall in November last year, as the improvement in production and the decline in demand increased the downward pressure on prices. The sharp drop in crude oil prices and the increase in the profitability of crackers have improved the economics of heavy cracking feedstocks, which has led to an increase in heavy cracking feedstocks, which has led to an increase in the production of carbon four feedstocks. At the same time, demand began to slow down. On the one hand, destocking activities at the end of 2018 led to a decline in the purchasing power of downstream producers. On the other hand, the winter climate was cold and seasonal demand in the downstream construction sector slowed down.
In 2019, the downturn in crude oil prices will ensure the economics of heavy cracking feedstocks. The increase in supply will increase the production capacity of butadiene downstream derivatives and promote the export of products with stronger cost advantages.