FocusEurope naphtha market tightness still expected to persist

15 February 2013 12:12  [Source: ICIS news]

By Jo Pitches

Naphtha crackerLONDON (ICIS)--The robustness and tight conditions seen recently in the European naphtha market are still expected to persist during the coming weeks, sources said this week.

“The market is dry, there’s no nap available at the front,” a trader said on Friday. “[It will last] for March at least.”

“Premiums are still at record highs, propane is recovering and gasoline is holding firm,” a trader said on Thursday. “I think it [the market strength] can go on for a while.”

In contrast to usual seasonal patterns, propane has been priced far below naphtha for most of the winter, rendering the former the first choice for petrochemical buyers.

On Friday, a liquefied petroleum gas (LPG) market participant said that 150,000 tonnes of propane were cracked in January. Normally at that time of year, none would be, with LPG normally in demand as heating fuel.

However, this does not mean that naphtha is ruled out of the cracking pool.

“Petchem margins keep steaming on,” a producer said on Wednesday. “Petchem runs should be stable going forward here.”

The source added that while buyers are choosing propane where possible, they still require base volumes of naphtha.

However, propane prices are volatile, with pockets of tightness in the market temporarily boosting values.

On Wednesday, the propane-naphtha spread stood at $118/tonne (€89/tonne), but by Thursday this had narrowed to $95/tonne as propane values climbed in response to healthy petrochemical demand. By Friday, the spread had widened again, to around $125/tonne.

When asked to describe petrochemical demand for naphtha, the producer said on Wednesday: “I think they gave a lot of shorts to traders in Feb, so demand is there, but it is not seen too much in the market.

"But they are slowly starting to sniff her [naphtha] now, and I would think they will be back, either late Feb or early March. But they are shocked by the premiums and have gotten used to getting cheap barrels, so it takes a bit for them to step up here now.”

The arbitrage situation also points to ongoing tight conditions in Europe.

The arbitrage to Asia has remained open for several weeks, with the east-west spread standing at $15.00/tonne for March on Thursday.

While the arbitrage to the US has stalled, at least some participants expect demand from the west to be revived in the near future as preparations for the driving season commence.

“It’s [the arbitrage] is still good to the east,” a producer said on Wednesday. “The US is chewing through what they took in Jan, and I expect them to return to some extent in March. But right now they seem decently well supplied.”

($1 = €0.75)

By: Jo Pitches
+44 208 652 3214

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