24 December 2010 12:16 [Source: ICIS news]
By Jo Pitches
LONDON (ICIS)--Strong demand in Asia and high crude oil prices are likely to be the two major driving forces supporting European naphtha prices in 2011, but this upside could be limited by a poor gasoline sector.
The market was predicted to be tight during the first quarter of 2011, with prices expected to climb further.
One view is that if high naphtha prices persist, it could lead to structural changes in the petrochemical industry.
“Next year will be interesting, though," a source said. "[Current] naphtha prices are not great for petchems, and if they persist, we will see them [the petrochemical industry] seriously looking to consolidate their European production.”
European prices during 2010 were at around $760/tonne in January and $610/tonne in July, before climbing to $830/tonne in December on the back of a combination of high crude oil prices and strong Asian demand.
“They make more things in Asia than they do here in
By early December, Asian demand had helped to push the crack spread to its highest level since March.
However in Europe it was a different story, with demand from petrochemicals tailing off in November and looking likely to stay subdued for the remainder of 2010. This was due to a combination of rising prices, a backwardated market, poor margins and a desire to run down stocks as the year drew to a close.
The continuous climb in oil futures was the other main factor likely to play a major role in supporting prices.
A World Energy Outlook report from the International Energy Agency (IEA) in November said that oil demand was expected to grow steadily and reach about 99m bbl/day by 2035, 15m bbl/day higher than in 2009. It went on to say that the average crude oil price was expected to increase to $113/bbl in 2035, from just over $60/bbl in 2009.
On Friday, February Brent crude was down $0.25/bbl from the previous close at $94.00/bbl. Naphtha prices stood at $867-877/tonne, up $2/tonne. January swaps were assessed at $867-868/tonne.However, this support from rising crude and Asian demand was likely to be partly countered by the poor demand expected from the gasoline sector.
Unless the global economy recovers significantly, demand for naphtha from the gasoline sector was going to stay poor.
“That is what’s needed to see an upturn in mogas,” a broker said. “It’s the biggest, most mature market in the
Another factor that could push prices down was new naphtha capacity from the
“That’s been a threat for years," one trader said. “It gets pushed back every year. Of course one day the new capacity will arrive, we just don’t know when.”
Another source also dismissed the danger of this new capacity, noting that the story had been around for years.
Overall, a buyer was of the opinion that 2011 would be a repeat of 2010, with no major changes.
“Players are still cautious about next year," he said. “But the overall mood is optimistic and confidence good.”
($1 = €0.76)
Giovanni Coiro contributed to this article
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