Europe naphtha oversupply opens arb to Asia

28 January 2011 17:47  [Source: ICIS news]

LONDON (ICIS)--Naphtha oversupply in Europe has pushed down crack spreads and allowed the arbitrage to Asia to open, market participants said on Friday.

With the current low level of buying interest from European petrochemical buyers, naphtha supplies have risen and crack spreads dropped to allow traders to move excess product to Asia, market sources said.

One trader said that the arbitrage to Asia had been improving steadily during the week until it opened.

It was understood that a number of February loading cargoes destined to Asia were in the process of being booked but there was no confirmation of this.

The crack spread on Monday 24 January was around minus $2/bbl (minus €1.46/tonne), dropping during the week to around minus $3.70/bbl on Friday 28 January.

The trader said that at one point the crack spread reached minus $4.10/bbl before recovering.

Naphtha flat prices have dropped from a range of $844-852/tonne CIF (cost, insurance, freight) NWE (northwest Europe) on Monday to $830-840/tonne on Friday.

The reason why the petrochemical industry was not showing interest was because most companies were using their high inventories of naphtha, the trader said.

Moreover, as the alternative feedstock, butane, dropped in value, petrochemical companies were substituting it for naphtha where possible, said another source.

Naphtha sellers however found extra demand not only from Asia but from gasoline blenders which also allowed the arbitrage to the US to remain open.

($1 = €0.73)

By: Giovanni Coiro
+44 20 8652 3214

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