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The Complexities in the Procurement of Butane Gas

Nov 8, 2017

Butane, an organic compound of hydrogen and carbon, remains in a gas form at room temperature and atmospheric pressure. Butane gas has a wide range of application but is mainly used as the primary gas compound in LPG cylinders. The increasing applications of LPG cylinders in cooking equipment, heating appliances, and vehicles are contributing to the growth of butane gas market.  Apart from its use in LPG cylinders, butane is used as a chemical feedstock to manufacture ethylene and butadiene, a key ingredient of synthetic rubber. The recent report from SpendEdge attributes high level of adoption of LPG as a domestic fuel in APAC and Africa as a major growth driver. Although there seem to be lucrative growth prospects in the butane gas market, butane gas manufacturers are facing various logistics and supply chain issues, including difficulty in the procurement of butane gas.Request Free Sample

Major Procurement Pain Points in the Butane Gas Market

Complexity in Monitoring Suppliers’ Compliance with Labor Laws

The buyers need to constantly monitor supplier’s compliance with labor laws and international standards regarding workplace conditions, as violations of such laws exhibit negligence in supplier evaluations from the buyer’s part. Such negligence could impose hefty fines and penalties to the buyer. Consequently, buyers will have to bear additional procurement costs to conduct periodic audits of supplier’s facilities to ensure compliance with labor laws. Major butane suppliers usually hire EHS consultants to carry out such audits.

Fluctuations in Butane Prices

The variation in demand and supply of butane alongside volatility in crude oil prices are contributing to the price fluctuation of butane gas. The buyers are facing difficulty in estimating their procurement budgets as the prices for butane differ in summer and winter season. The price difference is because of the changing nature of demand from automotive fuel suppliers as they change between summer-grade gasoline and winter-grade gasoline. Butane manufacturers usually include a clause for renegotiation in SLAs in case of price fluctuations to offset the changes.

Sourcing Limitations due to Import Duties

The government of several countries including Nigeria, China, and India levy import duties on butane in order to promote the consumption of domestically produced products. However, due to demand and supply imbalances or inefficiencies across the value chain of domestic players, the prices for butane usually falls on the higher side. For instance, although the price of butane is high in Nigeria due to process inefficiencies and inflation, they cannot import butane from other regions due to exorbitantly high import duties. To tackle with this procurement challenge, buyers evaluate countries where bilateral treaties are in place, which allows them to import the product by paying lower duties.

 

Read more about the top procurement challenges in the butane gas market along with sourcing strategy, cost modeling, strategic purchasing, pricing trends, and procurement best practices in SpendEdge’s upcoming report on the global butane market.

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