Traders are exploring possibilities of exporting Chinese butadiene (BD) to South Korea after an explosion at Lotte Chemical's Daesan cracker on 4 March crippled a 150,000 t/yr extraction unit and forced an indefinite force majeure declaration. The accident injured at least 31 people.
A BD consumer based in South Korea was forced to seek prompt second-half March supplies from Malaysia after Lotte declared force majeure. Freight rates between Malaysia and south Korea are currently hovering around $90/t while shipping costs between east China and South Korea are nearly half at around $50/t. Freight rates between Dalian, where Hengli's new 140,000 t/yr BD extraction unit is located, and South Korea would be even lower.
China's production of BD has risen over the past few months with the start-ups of both Hengli Petrochemical and Zhejiang Petrochemical's 200,000 t/yr plant on Zhoushan island. Prospects of Chinese BD exports are also now higher as the government started to provide a full 13pc refund on value added tax (VAT) from March 2019. There was previously a 3pc difference in VAT paid and refunds, which prevented substantial BD exports.
South Korea-based BD consumers have also started to receive offers for prompt BD from Chinese shore tank inventories in the high-$800s/t cfr Korea but had deemed these offers too high. Domestic Chinese BD prices are also under pressure as downstream operating rates remain low as a result of the coronavirus outbreak. Delivered prices are hovering around 6,400 yuan/t or around $794/t on an import parity basis after accounting for 2pc import tax and 13pc VAT.
But exports from these two green-field producers may not start immediately. Hengli Petrochemical has yet to stabilise the water content of its BD cargoes and this may not be able to meet specification requirements of Korean consumers, but this issue is expected to resolve itself over time. Zhejiang Petrochemical has already reached on-specification production from its plant but its export terminal will only be put into operations in May.
