The ratio of the Gulf Coast normal butane assessment to the front-month NYMEX crude contract is at 57.9% Friday morning, the lowest level since late 2008, Platts data showed, in part due to the deployment summer gasoline specs.
The ratio, which is a measure of butane's relative strength, has been on a sharp decline since early December, when it measured 90.58%.
Movement into a lower RVP gasoline season, relatively weak propane, record low ethane, low international prices and refinery turnarounds have all contributed to weakening butane.
Normal butane prices were assessed at the start of the year at $1.7855/gal, but have fallen consistently since then, trading at $1.2875/gal Friday morning.
Butane has a high RVP making which makes it volatile in finessed gasoline in warmer weather. Therefore, the amount of butane that blenders can add into finished gasoline falls as more stringent US gasoline RVP requirements start coming into effect every March. The requirements are strictest in the summer months, starting in early May and lasting until mid-September. Prices typically fall in the late winter and early spring as the higher RVP season comes into sight. However, the region is seeing price levels that were not seen until June in 2012.
Butane also competes with propane in the petrochemical industry, yielding a higher ethylene, propylene and aromatics content for each pound cracked. But, propane has also traded near record lows over the past nine months on its own slew of bearish fundamentals. As a result, low priced Gulf Coast propane has displaced some butane usage as a petrochemical feedstock.
Low propane prices have resulted in significantly more exports out of the Gulf Coast region, slowly withering away burgeoning stocks in the region and providing some uplift to prices. However, the same exit avenue has not been exploited for butane movements as traders favor the economics of sending propane to international markets due to the larger arbitrage opportunities it provides. For example, the differential Thursday between Japanese propane and Gulf Coast propane was $261/mt while the differential between butanes was $206/mt.
Weak isobutane values are another factor keeping normal butane prices low, sources said. Isobutane is combined with butylene or propylene in the production of alkylate, a blendstock valued by blenders for its high octane and low RVP. But, the alkylation unit is dependent on the FCC unit for refinery grade propylene and butylene and the spring refinery turnaround season took some alkylation units offline and dampened isobutane demand and butane demand, sources said.
The outlook for butane is not completely depressed despite the bearish fundamentals and market sources see light at the end of the tunnel. "If butane prices continue to fall and propane prices rise, we should see switching from the petrochemical sector," said Peter Fasullo of En*Vantage Inc. "Butane exports should also start to happen if prices continue to fall and as export terminal build-out is completed. Also, alkylation units should start running at higher rates in the region as we enter into driving season."