Energy and feedstocks: Europe naphtha balanced while US demand slows

01 November 2010 00:00  [Source: ICB]

Asian prices expected to steady as ethylene prices moderate undermined by rising supply

European naphtha was balanced last week. French industrial action had little impact on prices. The gap between the physical (spot) market and paper (swaps) market narrowed. Although the two were running parallel in terms of price, the latter market was strong, while the former was quite inactive.

A narrow arbitrage had opened to both the East and the West. Demand from the petrochemical industry remained steady, but weakened in the gasoline sector. With the price of naphtha remaining below that of alternative feedstock liquefied petroleum gas (LPG), naphtha continued to be viewed as a more economical option from the petrochemical industry.

Significant activity was seen early in the week, although this declined. Some players speculated that this burst of activity could have been a result of the return of many market participants from the Asia Pacific Petroleum Conference conference in Singapore.

Demand for US Gulf naphtha has slowed moving into the end of the year. Chemical companies continue to show preference for cracking ethane and have not sought material from the naphtha market. There has been some refining demand, but most of the call has been for paraffinic naphtha to blend with gasoline - and even that has been slow. Prices have held strong, but the market has been stagnant with little activity.

Asian naphtha prices were expected to steady last week. The spread between contracts for the first half of December and the first half of January narrowed to $5.50/tonne in backwardation from $6/tonne last week, on easing ethylene prices. Ethylene prices sagged to $1,030-1,060/tonne CFR (cost & freight) NE (Northeast) Asia from $1,140-1,160/tonne CFR NE Asia a month ago, undermined by rising ethylene supply.

More ethylene supply is expected, as South Korea's SK Energy plans to restart its 190,000 tonne/year No. 1 cracker - which has been idle for nearly two years - around the end of November (see page 16). Crude oil futures remained relatively unchanged, as the negative effect of a surprise increase in interest rates from China was countered by bullish US weekly inventory figures and encouraging business data from Germany.

Additional reporting by Jo Pitches and Giovanni Coiro in London




Author: Felicia Loo Sheena Martin

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