FocusEurope naphtha prices firm despite lingering oversupply

07 June 2013 14:49  [Source: ICIS news]

LONDON (ICIS)--Northwest European naphtha prices remain firm, despite little relief from oversupply and muted demand from the domestic petrochemical sector and the key US and Asian export markets, traders said this week.

Naphtha CIF (cost, insurance & freight) NWE (northwest Europe) prices picked up from a four-day - Monday to Thursday - average of $841.25/tonne last week to $851.50/tonne over the same period this week.

Prices are higher than in early May when naphtha supply was balanced and prompt cargoes were not as easily available (see table below).

PRICE $783-821/tonne  $820-842/tonne $816-847/tonne $822-861/tonne $827-856/tonne

Weekly naphtha prices (CIF NWE)

Naphtha prices increased by 6% – or approximately $45/tonne – from $783-785/tonne CIF NWE on 1 May to $827-831/tonne CIF NWE on 31 May, but weekly averages are lower than this week's.

Fundamentals have slipped since early May, and the majority of market players acknowledge the industry is largely oversupplied, despite independent stock data revealing a slight reduction in naphtha stocks relative to last week.

The oversupply is partly a result of poor structural petrochemical demand in the region.

A few downstream crackers that utilise naphtha as a feedstock are on maintenance, including Europe's largest cracker, owned and operated by BASF in Antwerp, which has a nameplate capacity of 1.08m tonnes/year of ethylene, according to ICIS data.

Unlike in May, there is little opportunity to relieve the high stock pressure in northwest Europe through extra export volumes to Asia as the arbitrage – which can be profitable only with a price spread of above $18-20/tonne between the regions – is only marginally open.

The June price spread between northwest Europe and Asia is around $18/tonne. A naphtha trader said: "[Exports] from the north [are in] the minority, [they are] mainly from [the] Med."

Meanwhile, demand for naphtha as a blendstock is unexceptional. "The arbitrage to the US is fragile. Blending economics are not too great. For the moment, naphtha is still rather strong," the trader said.

GAS-NAP SPREAD (WE 31 MAY) $131/tonne $120/tonne $127/tonne $121/tonne $131/tonne
GAS-NAP SPREAD (WE 7 JUN) $118/tonne $103/tonne $110/tonne $105/tonne N/A

Gasoline-Naphtha price differential (Free on Board Barges ARA)

The price spread between gasoline and naphtha has narrowed from last week (see above table). A narrowing spread usually indicates less naphtha demand for gasoline blending purposes.

A second naphtha trader agreed: "Demand for blending is poor at the moment. West African gasoline demand is okay but nothing great."

Bullish factors in the naphtha market include a rise in July ICE Brent crude oil futures to above $104/bbl this week.

In addition, rising prices in Asia have supported buying appetite in the daily open market platform where naphtha cargoes are traded.

Open-spec naphtha prices for the second half of July increased by $25/tonne from early in the week to $874-876/tonne CFR (cost & freight) Japan on 6 June.

Trading firm Glencore, which was in the market chiefly as a buyer last week, sold four of the nine open-traded cargoes this week.

Meanwhile, Swiss trader Vitol bought the majority of the naphtha cargoes. A third trader said on Wednesday that it attributed the higher naphtha prices to the increased demand from the buyer.

A fourth naphtha trader said on Tuesday's firm naphtha numbers: "The stronger numbers in the east [Asia] this morning is the only explanation."

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

($1 = €0.76)

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By: Cuckoo James
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