Europe cracker margins up by 28% on crude, naphtha slump

24 September 2012 15:48  [Source: ICIS news]

LONDON (ICIS)--European contract cracker margins have risen by 28% week-on-week, reflecting a 5.7% drop in euro-based naphtha prices, according to ICIS analysis on Monday.

In the week ending 21 September, margins grew by €116/tonne ($151/tonne) because naphtha prices fell by $68/tonne (€52/tonne), although some of the benefit was limited by the strengthening of the dollar. Co-product credits fell by 1.5%, mainly as a result of lower pyrolysis gas (pygas) values.

The September average to date stands at €443/tonne, up from the August average of €258/tonne.

Naphtha prices fell in line with crude oil prices, which ended last week posting large losses after a massive sell-off in late trading on 17 September.

The OPEC secretary general had issued a statement saying that there was no shortage of oil anywhere in the world, while Saudi Arabia said that it could still look to increase production to cap prices. The weekly US stock data showed a much larger build on crude stocks than forecast, which also added further downward pressure on prices.

Spot margins increased by €127/tonne, again in response to the lower euro-based naphtha costs. Co-product credits declined by 1.7%, mainly on lower pygas values. Spot ethylene prices were unchanged in dollar terms but strengthened in euro terms, further aiding margins.

Contract margins based on liquefied petroleum gas (LPG) rose by €118/tonne, following a 6.7% fall in euro-denominated LPG costs. Butane prices fell by $77/tonne and propane prices were $82/tonne lower, although some of the benefit was limited by the stronger dollar. Co-product credits fell by 1.4%.

The fall in naphtha prices left some ethylene and propylene consumers scenting downward adjustments in the October contract prices, discussions for which are getting underway.

However, given the unpredictability of the upstream market and recent volatility, olefins producers have cautioned against making an exaggerated response. Olefins producers consider that cracker margins – although improved from August – are still low on a historical basis, and therefore are not sustainable.

For September, the ethylene contract price settled at €1,300/tonne, while the propylene contract price settled at €1,160/tonne. The contracts are agreed on a free delivered (FD) northwest Europe (NWE) basis.

The new October contract prices are expected to be finalised by the end of this week.

ethylene spot vs contract margin

($1 = €0.77)

By: Nel Weddle
+44 20 8652 3214

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