September olefins settlements drive up Europe naphtha crack spread

31 August 2012 16:28  [Source: ICIS news]

LONDON (ICIS)--While naphtha market reactions to the September contract price settlements for ethylene and propylene are mixed, the settlements have nevertheless driven the September naphtha crack spread upwards, sources said on Friday.

“Crack’s up to minus $4/bbl!,” a trader said. “Totally crazy. Crude is up to $113.60/bbl. So nap [naphtha] is close to $980/tonne, up $15/tonne on the day!”

At 10.00 GMT, the naphtha crack spread was at minus $4.70/bbl, October Brent crude oil at $113.15/bbl, and the naphtha range was assessed at $966-968/tonne CIF NWE (cost, insurance, freight, northwest Europe).

“It’s [the September crack spread] going up because of that [the settlement] in part. September is at $4/bbl. It’s just about margin hedging,” a second trader said.

A producer said: “It [the settlements] makes the petchem margins a bit better but not too much, so [it] might not have a big effect on the naphtha demand.”

In recent days there have been concerns that increasing naphtha prices are damaging demand. Participants have also pointed to a growing disconnection between a robust ‘paper’ market and a weak, oversupplied physical market.

When asked whether this latest naphtha price increase will further damage interest in naphtha, the first trader agreed it would.

“Talking to petchems, demand is not there,” the source said. “And [there will be] less [demand] if the flat price keeps going up.”

In the last couple of weeks, prices for rival feedstock propane have increased, giving naphtha the advantage. However, during recent days, propane values have softened. This latest bolstering of naphtha prices could make LPG (liquefied petroleum gas) more attractive to petrochemical buyers.

“Propane-naphtha [price spread] for September is down to minus $40/tonne [below naphtha],” the first trader said.

A week ago, propane was priced $20/tonne above naphtha.

The source continued: “Propane can’t follow the nap bull play. So it might be back in the cracking pool soon.”

The European propylene monthly contract price (MCP) for September has been fully agreed at €1,160/tonne ($1,450/tonne), up €105/tonne from August following further seller support.

The European ethylene contract price for September has been fully confirmed at €1,300/tonne, up €125/tonne from August, following further buyer support.

($1 = €0.80)

By: Jo Pitches
+44 208 652 3214

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