15 February 2013 09:44 [Source: ICB]
The recent strength and tight conditions in the European naphtha market are likely to persist for at least the next month or so, participants said on 7 February.
Several sources agreed that the market has tightened from the previous week. With outbound arbitrages open and demand from the gasoline sector healthy, availability has been significantly reduced.
"Naphtha is super tight in the prompt [market]," a trader said. "[Arbs are open to the] east and west, gasoline arb is open to the States, although they have a lot of material now to chew through."
GASOLINE VOLUMES GO WEST
Significant volumes of gasoline have already headed west on the open arbitrage. "[These conditions should last] for the next 4-6 weeks," the source added. "Then it [the naphtha market] looks weaker right now. But who knows by then."
A second trader said: "Gasoline is still strong - gas/nap [the gasoline/naphtha price spread] is still wide and going wider evey month, going into the gasoline season, so that part will keep pulling nap."
On 7 February gasoline was priced $95/tonne over naphtha for February, and $113/tonne for March. Such a wide spread provides a clear incentive to purchase naphtha for gasoline blending.
"We still see a strong nap [market] for at least a month," the source continued. Can't see what could make the market longer."
A third trader said: "Yes it is [tighter]. The Feb-March [naphtha] price spread is at $19/tonne, and the March/April [spread is] at $17.25/tonne. Last night the cash diff (Feb fiz [price for physical material] against Feb swaps) closed at +$13/tonne, and the Feb fiz [against] March swaps at +$31/tonne. The arb is still very much open in the east."
On 7 February, the east-west price spread stood at $14/tonne.
However, this source was not convinced the European market strength will last. "Now with propane collapsing and gasoline high in stocks, it could quickly change," the trader added. "Propane is in the toilet, pro/nap [the propane-naphtha price spread] for Feb is at -$135/tonne, and pro/nap for March is at -$140/tonne."
With rival feedstock propane priced so far below naphtha, petrochemical buyers are likely to opt for the former wherever possible.
However, other participants argue that these factors have already been accounted for.
"The propane collapse is spectacular today," the first trader said. "It won't drag nap too much, as it was already in the pool."
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