Thursday, August 15, 2013

Butadiene Production and Price Trends

The first two graphs below show approximate annual butadiene global production amounts and approximate average price amounts for butadiene from 1988 to 2013.   This data was obtained from various websites found by exhaustively searching the Internet.  The data sources are believed to be reasonably reliable.  (One purpose of this blog is to indicate that such data is openly available on the internet.)

Another purpose of the blog is to analyze butadiene prices.

A regression analysis (using Excel) was done to determine the relationship between changes in butadiene production and butadiene price.  An R square value of 71% was found, indicating a reasonably good connection between changes in production with changes in price of butadiene.

A regression analysis was done to determine the fit of the changes in average oil (Brent) prices with changes in butadiene prices.  The R square value is 74%, indicating a reasonably good connection.  (Changes of Brent prices over time are shown in the third graph below.)

A regression analysis was done on the changes in butadiene production, year to year, from 1988 to 2012, with the changes in oil production over the same period.  The R square value was a convincing 98%, indicating a strong connection between the amounts of butadiene produced to the amount of oil produced.   So, it is not surprising that butadiene prices directly and strongly relate to oil prices.   (Changes in oil production over time are shown in the fourth graph below.)

From 1988 to 2012, the butadiene price was on average 2.6 times the oil price.  The standard deviation (using Excel) for this average 2.6 is 1.0.  Therefore, with a good probability, the butadiene price can be estimated to be between 1.6 and 3.6 times the expected oil price, assuming the above is correct.      

Another interesting idea about the 2.6 number is that it might represent a “premium” – an additional cost for the processing of butadiene from oil.  Such a number might be used as a benchmark, to achieve or surpass.

The close correlation between changes in butadiene prices with oil prices suggests to me that the raw material cost (e.g. cost of oil) is an important variable cost.   This would seem to offer a real opportunity for producers of butadiene using cheaper raw material costs, e.g. microbial fermentation of sugars.

With cheaper raw materials (and cheaper butadiene prices), more value should be created for both butadiene producers and users.  Also, with such a raw material as sugar, much less price variance in the raw material would be expected (compared to oil) leading to greater stability in planning and production, another value-creating result.

1 comment:

  1. Dear Mr Richard Torian,

    I am Luan Ngo - a student in Vietnam. My major is corporate finance. I read your report. It's really useful with a lot of realistic information. I have been doing my essay for graduation. My topic is about the relation between butadiene price - oil price and natural rubber price. Now I don't have the data of butadiene price after researching. Almost reports or statistics are charged with a high fee. I'm a student, I can't pay for them. I hope you will help me with the excel daily data of butadiene price in line with your graph above. It's really useful for my report. I will be very happy with your help.

    Please help me!!!