Further pressure on Europe naphtha as extra US volumes head to Asia

11 April 2013 13:39  [Source: ICIS news]

LONDON (ICIS)--The European naphtha market is under further pressure this week as extra US volumes heading east undercut demand in the key Asian market, with prices decreasing to nine-month lows, industry sources said on Thursday.

Around 300,000 tonnes of deep-sea naphtha supply from the US are expected to land in Asia in May.

"USGC [US Gulf Coast] is becoming long gradually. Lots of cargoes are moving from USGC to [the] Far East, so [product flow from northwest Europe] east will slow down as well," a trader in Europe said.

The extra volumes of US naphtha to Asia are "putting pressure on Asia" and "Europe too", a second trader said.

"All the traders are snapping up any bid they see as they are all pretty much without exception long on naphtha," a third trader said.

On Wednesday 10 April, European naphtha prices hit nine-month lows as the weak fundamentals outweighed firmer ICE Brent crude futures.

Naphtha CIF (cost, insurance & freight) NWE (northwest Europe) prices dropped by $7/tonne (€5.39/tonne) from $844-846/tonne on 9 April to $837-839/tonne on 10 April.

Naphtha prices close to this level were last seen at the end of July 2012, ICIS data shows.

Naphtha stocks in Europe are expected to rise in the coming days because of sluggish demand.

"NWE is already pretty full with naphtha. If you are trying to sell naphtha at the moment it is not easy - everything is a bit overflowing - so this [extra US volumes to Asia] is not really going to help," the third trader added.

Europe is structurally long on naphtha, with sellers exporting to the US gasoline blending and Asian petrochemical sector to keep the stocks in balance.

Last week, European naphtha prices were on a downward trajectory because of a steep fall in ICE Brent crude futures and transatlantic gasoline demand.

The main application of naphtha is in the petrochemical production of olefins.

Naphtha is also used as a feedstock for gasoline blending.

($1 = €0.77)

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By: Cuckoo James
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