Europe cracker margins down 60% on lower July CPs, firmer naphtha

09 July 2012 13:30  [Source: ICIS news]

European contract cracker margins have been slashed by 60%LONDON (ICIS)--European contract cracker margins have been slashed by 60% as naphtha feedstock prices have firmed in the aftermath of the significant €170/tonne ($207/tonne) reduction in the July ethylene contract price, according to ICIS analysis on Monday.

Cracker margins collapsed by €458/tonne to their lowest level since February 2012 after naphtha prices surged 10.4% once a 3% strengthening of the US dollar against the euro was factored in.

Co-product credits were down by about 6% as both propylene and butadiene (BD) July contract prices settled significantly lower because of a weaker upstream market through June and soft demand.

Spot margins softened by €30/tonne with the increase in naphtha costs outweighing a rebound in spot ethylene and butadiene (BD) prices.

In June, cracker margins had been at their highest since December 2008.

This loss of cracker margins has left some olefins producers questioning whether the €170/tonne decrease for July ethylene was a step too far, although some have described it as necessary to bring European derivatives prices back into line with competition from the US and Asia.

There are reports that the decrease has had the desired effect of a pick-up in demand, but others caution that the firmer energy complex and restocking ahead of the summer months, rather than any structural improvement, has been the root cause.

There was no respite for contract cracker margins based on liquefied petroleum gas (LPG) as they plunged €443/tonne – LPG prices rose about 16% – but LPG has improved on its premium to naphtha.

The July ethylene contract settled at €1,035/tonne, the lowest since December 2010. The July propylene contract settled at €935/tonne, the lowest since October 2010.

The July BD contract price settled at €1,500/tonne, down by €350/tonne from June.

The contracts are agreed on a free delivered (FD) northwest Europe (NWE) basis.

Naphtha Contract vs Spot

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($1 = €0.82)

By: Nel Weddle
+44 20 8652 3214

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