FocusEurope naphtha market expected to remain bearish

07 December 2012 13:05  [Source: ICIS news]

By Jo Pitches

Naphtha crackerLONDON (ICIS)--Despite a slight improvement in demand a few days ago, the European naphtha market is still oversupplied and bearish and is expected to remain so for the foreseeable future, sources said this week.

There was a low level of Asian petrochemical demand and a slight uptick in requirements from the gasoline sector on Monday. However, this increased interest in European naphtha was short-lived.

On Wednesday, a producer said: “It’s [the market] not looking too strong. There has been a little bit of demand from gasoline blending, but that has tailed off now. We don’t see any interest from the east for paraffinic naphtha.”

A trader said on the same day, while referring to Europe’s surplus of naphtha: “It's a little mixed....[there’s a] bit of Asia cracking demand yes, and some gasoline demand, but there should still be plenty of molecules around,”On Friday, a buyer added: “Some [naphtha] has gone to gasoline [the gasoline sector for blending], but the oversupply is persistent.”

Most participants agree that the market is not looking any healthier than it did a week ago.

The arbitrage to Asia still remains closed for most grades of naphtha. By Friday, the east-west spread stood at $4.25/tonne for January. A spread of $15-20/tonne (€12-15/tonne) is usually deemed necessary to make an arbitrage to the east economically feasible.

Furthermore, while cold weather in parts of Europe has increased requirements for heating fuel, which in turn is keeping prices for rival feedstock propane significantly above those of naphtha – by Friday, the propane-naphtha spread stood at $100/tonne - petrochemical demand remains thin as the year-end approaches.

Looking ahead, the outlook for the European naphtha market remains bleak, with few if any changes expected for the coming weeks and months.

“Yes, I think it [2013] will be lots of the same as this year,” the producer said on Wednesday, referring to the persistently negative crack spread, frequent oversupply and subdued demand seen in 2012.

A trader said: “Well, the usual [January] restocking should happen, and big refinery turnarounds, should slow production… It [business] should pick up, but margins for the chems are poor, so maybe have to wait till Feb.”

On Friday, the aforementioned buyer said: “The first half of 2013 is likely to be similar to 2012, a negative crack, the economy isn’t improving, crackers are running at reduced rates…The second half could be a bit better, though. I think people might be a bit more optimistic by then.”

($1 = €0.77)

By: Jo Pitches
+44 208 652 3214

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