1,3-Butadiene Prices Rose Initially in July Driven by Costs but Fell Back due to Demand-Side Pressure

Market analysis

Cost perspective:

International crude oil prices fluctuated significantly in July, immediately influencing the price trends of steam cracking feedstocks such as naphtha. Early in the month, crude oil prices strengthened amidst evaporative environment, driving up naphtha prices and raising production costs to ethylene cracking units; this provided a solid price floor to 1,3-butadiene and served as a key driver to market gains. By mid-to-late July, the upward momentum to crude oil faded and prices retreated; cracking feedstocks weakened in tandem, causing cost-side support to gradually diminish. Meanwhile, price spreads between 1,3-butadiene and its upstream and downstream items continued to narrow, prompting refining and chemical companies to adjust cracking severity to optimize output, which further impacted the volume of marketable 1,3-butadiene. While cost fluctuations drove shifts in market sentiment, cost-related bullish factors alone were insufficient to sustain a continued market rally; ultimately, the market struggled to maintain high price levels due to supply-demand fundamentals. As of July 28, the settlement price to the September contract of US WTI crude oil futures stood at $79.26 per barrel, while the settlement price to the October contract of Brent crude oil futures was $82.08 per barrel.

Supply Side:

Domestic 1,3-butadiene supply in July followed a pattern of initial contraction followed by a gradual recovery. Early in the month, domestic steam crackers entered a maintenance cycle, leading to reduced sector output; this, combined with limited replenishment from imports and tight spot market availability, strengthened producers' resolve to maintain prices, thereby supporting an upward direction. As some units resumed operations later in the month, domestic supply increased steadily. The flow of overseas material remained flexible, and the possible to external inflows continued to cap the market's upside possible. Overall inventory levels fluctuated; the price support previously provided by low inventories gradually weakened, making it difficult to sustain high price levels.

As of July 29, the listed price to 1,3-butadiene at Sinopec's sales subsidiaries is 10,000 RMB/ton, an increase of 1,000 RMB/ton from the 9,000 RMB/ton price in effect on June 30.

Dongming Petrochemical's 50,000-tonne/year 1,3-butadiene unit is operating normally; 280 tonnes are being offered to external sale with a base price of 9,900 RMB/ton.

Satellite Chemical's 90,000-tonne/year 1,3-butadiene unit is operating normally; 224 tonnes are being offered to external sale with a starting price of 10,000 RMB/ton.

Demand Side:

In July, domestic demand to 1,3-butadiene exhibited a pattern of "marginal recovery early in the month followed by a continued weakening mid-month." Overall "must-have" demand lacked resilience, and there was no significant boost from concentrated restocking. Early in the month, with feedstock prices at low levels, production margins to various downstream items improved and plant operating rates saw a slight uptick; this drove a temporary surge in feedstock purchasing and pushed prices higher. However, as 1,3-butadiene prices spiked rapidly, cost pressures mounted across the entire sector chain. The inability to efficiently pass costs on to downstream items, combined with weak end-market orders, once again squeezed sector profitability. Resistance to high prices intensified across the market, with companies generally limiting purchases to immediate, essential needs. This lack of sustained inventory building acted as a key factor constraining further price increases and driving a pullback from the highs.

As key downstream derivatives of 1,3-butadiene, poly1,3-butadiene rubber (PBR) and styrene-1,3-butadiene rubber (SBR) saw a recovery in production margins early in the month when feedstock prices were low; the restart of certain production units drove a surge in raw material procurement, pushing 1,3-butadiene prices upward. However, as 1,3-butadiene prices continued to climb, cost pressures on rubber items intensified sharply. With the tire sector in its traditional off-season and orders to finished items remaining weak, rubber manufacturers struggled to pass on costs, leading to a renewed compression of processing margins. Downstream purchasing reverted to a "need-based" pattern, halting extensive stockpiling and reflecting significant resistance to high raw material prices. As of July 29, the SBR market in the Jiangsu-Zhejiang region was trending downward due to weak conditions. With international crude oil prices retreating from highs and downstream buyers limiting inquiries to immediate needs, SBR sellers slightly lowered their quotes; mainstream offers to the 1502 grade from Fushun, Lanzhou Petrochemical, and Yangzi Petrochemical currently stand at 13,450–13,600 RMB/ton, while Qilu Petrochemical's 1502 grade is quoted at 13,550–13,700 RMB/ton. Supply-demand fundamentals are under growing pressure: domestic synthetic rubber plant operating rates remain above 66%, ensuring ample market supply, whereas the downstream tire sector is operating at low levels due to the traditional off-season.

Market outlook

Assessing market fundamentals to July, the 1,3-butadiene market remains in a tug-of-war between supply and demand in the short term; downstream resistance to high prices—following earlier gains—has yet to subside, suggesting the market will likely undergo a period of consolidation. Fluctuations in crude oil and cracker feedstock prices continue to affect the cost floor, while domestic plant maintenance schedules and the pace of imported cargo arrivals keep spot supply evaporative. Key factors to monitor going forward include operating rates at downstream synthetic rubber and ABS vegetation, as well as the pace of inventory restocking as the tire sector emerges from its off-season. Should downstream demand fail to recover while supply continues to normalize, the market will face continued downward pressure; conversely, if downstream profitability improves and triggers a wave of concentrated restocking, prices could find support and stabilize. The medium- to prolonged outlook hinges on the rebalancing of upstream and downstream profit margins and the extent to which demand materializes during the traditional peak season.