FocusEurope naphtha seen down for the long term

23 October 2008 18:08  [Source: ICIS news]

By Alex Davis

LONDON (ICIS news)--The European naphtha market has been foreced into a downward spiral that will last for the foreseeable future due to the threat of a global recession, industry observers said on Thursday.

Spot naphtha values have halved in a month to $430-440/tonne CIF (cost, insurance, freight) NWE (northwest Europe) from $860-870/tonne CIF NWE .

Demand for the feedstock has grown so weak that the crack spread values have sunk to -$17.50/bbl, almost $3/bbl below the -$14.60/bbl reached during July’s record prices.

As such, the naphtha market is suffering a two-pronged attack, with value being stripped off on a daily basis, but with sellers continually struggling to offload the product.

Snapping at the heels of naphtha’s retreating value is the additional problem of storage costs.

Sources quoted costs for storage at independent facilities around €8.50/tonne a day ($10.90/tonne a day) in the Amsterdam-Rotterdam-Antwerp (ARA) hub.

"What we are seeing is a classic destruction cycle. So sellers will be faced with two choices. You can either grin and bear it, and sit and watch your stocks lose value, or you can run the stocks down," said Dr Philip Leighton of Jacobs Consultancy in London.

"Of course, what you then get is a vicious cycle. When people run off their stocks, this cuts demand yet further, and things start to fall faster and faster. These cuts can roll on for several months."

Indeed, there have been reports that stock levels for naphtha at independent ARA facilities have shrunk from 97,000 tonnes last Thursday to 50,000 tonnes, with players stating the feedstock was forced into the gasoline blending pool.

Although refiners recently exploited the gasoline blending pool as an outlet for oversupply, that avenue appears to have dried up, market players said.

"N+A naphtha is not so good right now for gasoline blending since other sub-octanes like raffinates seem cheaper," said one player. "It’s something of a white elephant."

Another source agreed: "Activity has been minimal."

The market will have to come to terms with the shrinking conditions.

Added Dr Leighton, ‘We are going into recession. Demand and prices will inevitably stabilise, but at a lower level.’

($1 = €0.78)

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By: Alex Davis
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