Europe naphtha market lengthens further on weak Asian market

15 June 2012 12:59  [Source: ICIS news]

LONDON (ICIS)--An already oversupplied European naphtha market has lengthened further because of poor demand in Asia closing the arbitrage east, market participants said on Friday.

Although demand for Asian naphtha has rebounded, it is likely to be short-lived as an oversupply in the region persists.

“Yes, it’s [Europe] longer, the arb [arbitrage] east is closed,” a producer said.

This is unwelcome news for the European market, which has become increasingly reliant on arbitrage opportunities to Asia to offload surplus stock.

“Yes, it’s pessimistic,” a trader said on Thursday. “The door to the east is closed and we’re quite dependent on an arb to the east.”

“Petchems are struggling in Europe and now in Asia, the US has shale gas now,” the producer said, adding: “Gasoline demand isn’t what it was.”

However, despite European volumes building further, sellers are not yet desperate.

“The front is not distressed. Cargoes are being placed even though petchems are not buying,” the trader said on Thursday.

On Friday a buyer said: “There are no distressed cargoes yet, but people are keen to sell. Europe is long, and cargoes have to go somewhere.”

It is suggested that a contango price structure is currently encouraging the purchase of material for storage and sale at a later date. However, it is unclear for how long this opportunity can be taken advantage of. The future looks uncertain for the European naphtha market.

“There’s no light at the end of the tunnel in terms of the negative crack spread,” the trader said on Thursday. “Naphtha is just a byproduct of refining. We’re on unchartered territory, there’s less gasoline consumption than there used to be.”

The source added: “The market could collapse or it could rebalance, it’s unknown. If it crashes it will be bad, but not as bad as before [in 2008]. People have had more time to prepare, they’re experienced from four years ago, and they’re controlling the situation.”

The producer took a more pessimistic view. “Refinery margins have to correct. Naphtha tends to be an early indicator of the world economy situation,” it said.

By: Jo Pitches
+44 208 652 3324

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly