Europe naphtha crack spread weakens on Japan earthquake worries

11 March 2011 12:44  [Source: ICIS news]

LONDON (ICIS)--The massive 8.9-magnitude earthquake that hit the northeast coast of Japan on Friday and triggered a tsunami has weakened the European naphtha crack spread on fears that naphtha demand in Europe will be affected, sources said.

On the afternoon of 10 March, the naphtha crack spread was at minus $4.60/bbl. On Friday morning, it had softened to minus $5.15/bbl.

“The crack is down because of Japan,” a trader said. “It’s obviously early days yet, but Japan is a major importer of naphtha, and crackers are going down there,” which would affect the consumption of naphtha.

A second source said: “We’ll lose demand in the short term.”

A weaker crack spread exerts downwards pressure on naphtha spot prices, thereby making naphtha more attractive to buyers.

Although the arbitrage to Asia is currently closed, sources said there is a perception that the structural damage would result in fewer opportunities to send material to Asia during the coming weeks.

A broker expressed a slightly different view, saying that the situation is more complex and could even result in increased demand for naphtha.

“If more local refineries go down than petchem plants, the local supply will have to be replaced, which would mean increased demand, possibly from Europe,” the broker said.

Several market sources said that more information would be needed regarding structural damage in Japan before any firm theories could be formed.

“Until then, everyone is just guessing,” a source said.

At 11:00 GMT, Europe naphtha cargoes were trading at $966-974/tonne CIF (cost, insurance and freight) NWE (northwest Europe).

Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By: Jo Pitches
+44 208 652 3214

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