Euro cracker margins fall sharply for second consecutive week

11 July 2011 16:42  [Source: ICIS news]

Naphtha cracker at sunsetLONDON (ICIS)--European contract cracker margins based on naphtha feedstock fell sharply for the second week in a row, following an 8.3% jump in upstream costs, according to ICIS margin analysis on Monday.

The contract margin fell by nearly €130/tonne ($186/tonne) in the week ending 8 July because of an almost $60/tonne rise in naphtha prices, combined with a 1.8% strengthening of the US dollar against the euro.

The loss was slightly mitigated by a 2.6% gain in co-product credits – notably higher fuel values.

Spot naphtha margins plunged by nearly €190/tonne to €318/tonne, the lowest margin since mid-January, because of weak ethylene and butadiene spot prices.

Ethylene spot prices are assessed around €850/tonne FD (free delivered) NWE (northwest Europe). This compares with the prevailing July contract price of €1,090/tonne FD NWE.

Butadiene prices were down by $600/tonne to $4,000–4,300/tonne FOB (free on board) ARA (Amsterdam, Rotterdam, Antwerp), finally coming off the record highs which were the result of global demand far outweighing supply.

Contract cracker margins based on liquefied petroleum gas (LPG) also dropped over the week. The €88/tonne fall was the result of a 7.2% increase in costs.

Naphtha retains the advantage over LPG, but this has narrowed to just €66/tonne, compared with €107/tonne last week.

Spot and contract prices have been weakening for the past two months because of lengthening supply and slow demand, which has led to much industry speculation over the extent of cracker cutbacks.

For many, up until now the view had been that the margins were large enough for producers to absorb – and so avoid turning down crackers. The crunch on cracker margins will push operators to tailor output very closely to that of demand.

European olefins players are taking a wait-and-see approach, to determine whether the signs of recovery on the Asian market will have any impact in Europe.

The July propylene contract settled at €1,130/tonne, down by €75/tonne, while butadiene settled up by €180/tonne at €2,500/tonne.

Euro cracker margins fall sharply for 2nd consecutive week

($1 = €0.70)

For more on olefins visit ICIS chemical intelligence

Click here to find out more on the European margin reports

By: Nel Weddle
+44 20 8652 3214

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