04 July 2011 15:04 [Source: ICIS news]
LONDON (ICIS)--European contract cracker margins based on naphtha feedstock have fallen by almost a quarter on a combination of lower ethylene and propylene July contract settlements and higher naphtha costs, ICIS margin analysis showed on Monday.
In the week ending 1 July, contract cracker margins fell by €162/tonne ($235/tonne) to €579/tonne. The average margin for June was €667/tonne – the best seen in 2011 so far and the highest post-2008 crisis margin.
The reductions were the result of bearish pressure due to weak demand and burgeoning supplies. The contracts are agreed on a free delivered (FD) northwest Europe (NWE) basis.
While naphtha prices rose by $36/tonne, the weakness of the US dollar against the euro limited the rise to 1.8% in euro terms.
Spot margins fell by €174/tonne as ethylene and propylene spot prices took a dive because sellers were forced to heavily discount spot volumes in order to encourage some buying interest. €507/tonne is still a very healthy margin and some sources said that there is room for spot prices to soften further if cracker operators are reluctant to cut operating rates.
Liquefied petroleum gas (LPG) contract cracker margins fell on the back of the lower contract settlements as a $6/tonne rise in LPG prices was more than offset by the weaker US dollar.
However, at just €472/tonne, European crackers will be favouring naphtha as feedstock, which has been the case for most of 2011.
Traditionally, European crackers turn to lighter, cheaper feedslates in the summer months, but in 2010 this pattern was disrupted because of a number of factors including shortages caused by the onset of a new cracking capacity in the Middle East.
($1 = €0.69)
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