Houston (ICIS)-The application of derivatives has given a huge boost to the U.S. Butanediol (BDO), and in many cases provides a better profit margin than polyester polyols, which are the largest raw material End use.

The weak demand in certain industries (such as automobiles) has been offset by other industries such as pharmaceuticals.

Derivative tetrahydrofuran (THF) is in great demand, especially in pharmaceutical applications and polyvinyl chloride (PVC) cement.

As the pharmaceutical industry is particularly heavily dependent on Asian suppliers, coupled with the dual disadvantages of increased demand related to the pandemic and port congestion that have caused serious delays, US buyers have turned to domestic sellers to help fill the gap.

THF is also the precursor of the largest BDO derivative, and polytetramethylene ether glycol (PTMEG)-used to make spandex fibers-has led to competition among end uses.

However, the supply of tetrahydrofuran in the United States is restricted by the tight supply of raw material BDO, which must be prioritized based on demand, and profit margins must be prioritized in an environment where soaring energy and logistics costs bring additional pressure.

This represents the balancing act of satisfying contractual supply and optimizing profit margins. At this time, the derivatives at the most downstream of the value chain may provide the best profit margins.

The demand for the derivative N-methylpyrrolidone (NMP) is also high, especially in the production of lithium-ion batteries. With the requirements of electric vehicles, the demand for such applications should increase dramatically in the near future, many of which use NMP-containing batteries.

The demand situation for derivative polybutylene terephthalate (PBT) is more complicated-due to reduced downstream production, automotive demand has fallen, but demand for electrical and electronic applications continues to be strong.

In addition, the continued shortage of upstream acetic acid-the downstream polyethylene terephthalate (PET) packaging preferentially uses intermediate purified terephthalic acid (PTA)-has inhibited the consumption of BDO into PBT.

Seeking higher transaction volumes Before entering quarterly contract negotiations, US BDO and derivatives buyers are seeking higher annual transaction volumes than in 2020 or 2021, although there are few signs of improved availability.

Buyers are also approaching each supplier for 100% of their required quantity, rather than the historical trend of distributing quantities among sellers.

Higher output is designed to help fill a large backlog of downstream orders, increase inventory and ensure continuity of supply.

In addition to the existing supply restrictions, the United States and Europe will carry out planned maintenance in the first half of 2022 to further tighten global supply.

It is expected that discussions in the first quarter of 2022 will begin in mid-December, and any nominations for price increases will be announced in the first two weeks of this month.

Throughout 2021, especially starting from the second quarter, supply security replaced costs, because price increases encountered little resistance before they were fully implemented.

According to ICIS, the price of BDO in the United States has increased by 91% from the level in the fourth quarter of 2020.

U.S. prices usually lag one to two quarters to roughly follow the trend in China, but fluctuations in Asia (related to upstream values, energy policies, etc.) have caused prices in these two regions to become more disconnected since the second quarter of 2021.

Downstream outlook US BDO participants are monitoring downstream automobile production in 2022 with cautious optimism.

The global automotive industry is still struggling to make up for the losses associated with the pandemic. The Oxford Economics Institute predicts that production in the fourth quarter will fall by 6.5% compared to the fourth quarter of 2019.

ICIS demand analyst Jincy Varghese said that global car production growth is not expected to resume until the third quarter of 2022, and semiconductor chip supply is expected to remain tight in 2022.

Although chip makers may prefer consumer electronics because of higher output and profit margins, automotive chip suppliers such as Infineon and Bosch are increasing production capacity.

Due to very low inventory, U.S. light vehicle sales in October 2021 decreased by 22.3% from October 2019 levels.

BDO is a chemical intermediate used in the production of polymers, solvents and fine chemicals.

US BDO producers include Ashland, BASF and LyondellBasell.

Insights by Antoinette Smith

The thumbnail shows a plastic syringe filled with medication, which may include tetrahydrofuran. Picture from Medicimage/Shutterstock.

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