Europe naphtha trades spike on increased market activity

31 May 2013 13:27  [Source: ICIS news]

Naphtha crackerLONDON (ICIS)--Trading activity in the northwest European naphtha market has more than doubled this week on what some say are purchases based on expected future price hikes.

Trades in the open market platform jumped from an average of 1-2 cargoes a day to 4-5 a day this week despite stable-to-slow downstream demand, industry sources said.

The bulk of the cargoes were purchased by commodity giant Glencore, mostly from Dutch trading firm Trafigura. Other active buyers included oil giants BP and Shell, as well as Swiss trader Gunvor.

A trader said: "From a buyer's point of view it allows them to support the price every day, because they must be pricing in some long paper positions. [This is] only [my] interpretation."

A long position translates into purchases based on expectations of a future increase in the commodity's value.

"From a seller point of view, the window [open market platform] is where you get the best number these days. Open spec [naphtha prices] are cheaper outside the window," the trader added.

Vitol and Trafigura have sold the majority of cargoes so far this week. A petrochemical producer that buys naphtha said: "There is a lot of activity, because people have different views. It is always a combination of their paper book, and their physical book - difficult to read."

Naphtha traded comparatively firm in the $840s-850s/tonne CIF (cost, insurance, freight) NWE (northwest Europe) for the most part this week, up from low $800s/tonne in the first half of May.

However, naphtha fundamentals are weaker relative to mid-May, sources maintained.

Independent stock data from the ARA (Amsterdam-Rotterdam-Antwerp) region showed a rise in naphtha supply from two weeks ago, when the market was balanced on increased exports to Asia.

A second trader said: "The market is long enough ... so it [the spike in trades] is a bit surprising."

In addition, opinion on naphtha demand from the gasoline sector is mixed, with some saying good demand is limited to selected naphtha grades, while petrochemical demand is at slow, but steady, levels.

Nevertheless, there were some signs gasoline demand - and consequently demand for naphtha as a blend stock - could pick up as the key US export market entered the traditional summer driving season after the Memorial Day holiday weekend.

Data from the US Energy Information Administration (EIA) revealed on Thursday that gasoline stockpiles in the country have fallen by 1.5m barrels in the week ending on 24 May, potentially opening up opportunities for gasoline sales, and as a result naphtha sales, from Europe to the US.

Naphtha is used extensively as a gasoline blending component and in the petrochemical production of olefins.

($1 = €0.77)

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By: Cuckoo James
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