Europe naphtha at 16-month low on soft crude, supply/demand factors

24 May 2012 11:58  [Source: ICIS news]

BASF cracker at AntwerpLONDON (ICIS)--European naphtha prices have fallen to their lowest level since January 2011 because of weak demand, increased supply and softer Brent crude prices, sources said on Thursday.

At 9:40 GMT, the naphtha range was assessed at $823-831/tonne CIF (cost, insurance and freight) NWE (northwest Europe), with July Brent at $105.65/bbl and the June crack spread at minus $12.70/bbl.

The naphtha price range was last at a similar level on 26 January 2011, when prices were assessed at $825-835/tonne CIF NWE. March Brent was at $96.98/bbl, and the February crack spread at minus $3.30/bbl.

A trader confirmed that, in addition to recent softer Brent prices stemming from concerns about the eurozone debt crisis, poor demand for naphtha and an increased supply is driving down the crack spread, and hence naphtha prices.

“Europe is weak, with crackers trimming to 75%,” the source said. “The [gasoline] blending pool is not pulling any more, and the arb to the east is hard to work. Demand out there [in Asia] is reduced, and Middle East supplies have increased.”

Furthermore, the price spread between naphtha and rival feedstock propane has widened further still. A difference of $170/tonne provides a clear incentive for petrochemical buyers to opt for cheaper propane rather than naphtha wherever possible.

Lower crude oil prices mean that refineries are not yet cutting operating rates. This, in turn, suggests no reduction in the supply of naphtha.

“Refineries are not trimming [runs] yet on ok margins [for other products], thanks to crude down to $105/106[/bbl],” the source said.

The trader added that the only support for naphtha could come from the gasoline pool and the arbitrage to the US. However, the latter is only just open, and it is unclear whether it is likely to fully open or close.

When asked whether naphtha prices are likely to fall further, the trader replied that it is difficult to say.

“There are more bearish factors than bullish at present. But [if] a few cargoes [go] to the US, some [are] forced to the east, and crackers run hard in June in Europe on the back of strong demand [as all May purchases are being pushed back to June on the expectation of  a lower MCP, for downstream products such as ethylene and propylene], it [could] all bounce back again.”

By: Jo Pitches
+44 208 652 3214

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