Europe contract cracker margins drop on naphtha costs, exchange rate

18 February 2013 17:36  [Source: ICIS news]

LONDON (ICIS)--European naphtha-based cracker margins dropped €31/tonne ($41/tonne) in the week ending 15 February as naphtha costs hit their highest level since April 2012 and exchange rates fluctuated, ICIS analysis showed on Monday.

European contract margins based on naphtha feedstock were pegged at €325/tonne for the period. The €31/tonne decrease in the margin resulted from the 1.7% rise in euro-denominated naphtha costs.

Naphtha prices rose by $14/tonne to their highest level since April 2012, with the impact on margins accentuated by a 0.2% strengthening of the dollar.

The contract margin decline was cushioned to some extent by the slight 0.5% uptrend in co-product credits, mainly on higher raffinate-1 and pygas values.

The contract margin value in the week ending 15 February 2013 represented the lowest value since the week ending 31 August 2012, according to ICIS margin data.

By contrast, spot margins based on naphtha feedstock increased by €28/tonne as a $50/tonne rise in spot ethylene prices (for imports) and a 1.8% rise in co-product credits outweighed the higher naphtha costs.

European monthly contract price discussions for March will start in the next few weeks. Early indications are that sellers are likely to push for price increases based on firming naphtha prices over the past month alongside some planned and unplanned cracker output constraints.

Buyers, however, while they understand the feedstock pressure, are also aware that downstream demand remains fragile because of high prices and soft macroeconomic conditions – particularly in the main downstream polymer sectors – and that any possible increases are likely to jeopardise demand further.

($1 = €0.75)

By: Heidi Finch
+44 20 8652 3214

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