Europe naphtha demand still weak as high prices persist

20 April 2011 13:35  [Source: ICIS news]

Naphtha cracker at sunsetLONDON (ICIS)--Ongoing high naphtha prices in Europe are continuing to push down demand for the product, sources said on Wednesday.

Driven by crude oil price hikes, naphtha reached a 33-month high on 8 April when the range was assessed at $1,054-1,062/tonne CIF (cost, insurance and freight) NWE (northwest Europe).

While prices have fluctuated slightly since then, they have remained around the high levels last seen in July 2008, when on 21 July the range stood at $1,050–1,060/tonne.

“The physical market is weaker,” a trader said. “Prices have damaged demand for sure.”

A second source added: “It’s too expensive for most end users, they’re not willing to pay up.”

A third trader said: “Prices are high, there’s volatility,” adding that a large backwardation was not helping demand either.

A backwardation of around $29/tonne was reached on the afternoon of 15 April and similar levels have persisted since.

While the market has recently been tight, this damage to demand now threatens to lengthen it.

“Globally, Europe has the highest prices,” a trader said. “There’s no arb anywhere. There’s also a stand-off between buyers and sellers.”

The consensus was that buyers were not prepared to pay the levels sellers were asking.

“There’s lots of product in Europe, but prices are high and everyone is covered,” a second source said.

While Brazil continued to show some interest, there was said to be little demand from the gasoline sector, despite the forthcoming US driving season.

“The crack has to weaken to open arbs,” a trader said. A softer crack spread has a dampening effect on flat prices.

“The backwardation should disappear first to bring back demand,” a second source believed.

At 11.00 GMT, the naphtha cargo range was assessed at $1,069-1,077/tonne CIF NWE. The naphtha crack spread was at minus-$5.30/bbl and June Brent crude oil was at $122.88/bbl.

By: Jo Pitches
+44 208 652 3214

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