Europe naphtha market set to lengthen on poor demand and imports

06 July 2012 16:42  [Source: ICIS news]

LONDON (ICIS)--A combination of lacklustre demand and open arbitrages into Europe are significantly lengthening the European naphtha market, sources said on Friday.

“It’s [the market] heavy, longer at the front,” a trader said. “It’s the incoming material from the reverse [arbitrages].”

“There’s lots coming into Rotterdam, from Latin America and the US,” a buyer said. “There could be around 300,000 tonnes.”

Furthermore, material that would normally move from the Mediterranean to Asia is instead heading to northwest Europe, the source added.

This is unwelcome news for the already-long European market.

A price structure backwardation is also exerting pressure on participants to offload stocks built up during the recent contango.

However, with demand lacklustre, outlets for European naphtha remain limited.

Despite a relatively wide east-west August price spread of $17-18/tonne (€14-15/tonne), the viability of an arbitrage to Asia is unclear.

“Well, it [a relatively wide spread] helps, I guess. But it’s not going to pull [volumes to the east],” a second trader said.

Participants have not noticed any cargoes booked for Asia this week.

As reported by ICIS on Friday, the Asian naphtha market is suffering weak petrochemical demand and requirements for naphtha are limited.

European petrochemical demand also remains poor, with an ongoing wide price spread between naphtha and rival feedstocks propane and butane. By Friday, August propane was priced around $105/tonne below naphtha, while butane was approximately $115/tonne cheaper than naphtha. This gives liquefied petroleum gas (LPG) a clear advantage.

Thursday’s sale of naphtha cargoes by petrochemical companies Dow and BASF also suggests limited requirements for naphtha.

The only current support for naphtha appears to come from the gasoline sector. The driving season has increased US requirements for gasoline itself, and hence for blending components. However, it is unclear for how long this can be sustained.

“I think gasoline looks the stronger party in the complex,” the second trader said. “But not sure if they can keep supporting naphtha”

($1 = €0.81)

By: Jo Pitches
+44 208 652 3214

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