12 June 2013 15:42 [Source: ICIS news]
LONDON (ICIS)--There is mixed reaction in the naphtha market to a slight pick-up in demand from the downstream petrochemical sector, evidenced by a recent hike in cracker run rates, sources said on Wednesday.
European crackers are estimated to be running at around 80-85% of nameplate capacity on average, up from previous weeks' run rates of 75-80%.
The hike is attributed to an increased buying appetite in the key ethylene derivative polyethylene (PE).
May PE demand was healthy and June demand is expected to be even stronger, especially for some grades.
"I saw the [petrochemical] prices ramp up, so assumed we would see some higher runs," a naphtha trader said.
In addition to the healthy derivative PE demand, naphtha is said to be increasingly gaining favour among petrochemical buyers because of an improving price spread between naphtha and alternative feedstock LPG.
"It could be [that demand for naphtha is good], especially with the propane-naphtha spread at $85/tonne for June now. It was at $170/tonne last month," a second trader said.
However, some traders said the pick up in downstream business was merely due to short-lived restocking, with one trader adding the inflated demand had already shrank back to its previous level.
"There has been [a pick up] lately just because of some re-stocking demand but that's gone again," a third naphtha trader said.
"It is short lived demand. We are still in a recession," the source added.
Any pick-up in demand could have no major impact on naphtha prices, a fourth trader said. Naphtha prices were assessed at $845-847/tonne CIF (cost, insurance & freight) NWE (northwest Europe).
"Well, 80% is not a massive hike. Think naphtha can cope with the additional demand if there is any," it said.
Most traders agree the naphtha market is still oversupplied, with chances to export additional volumes to Asia almost non-existent and the demand from the US gasoline sector slow.
Europe is structurally long on naphtha, and sellers need good demand from US gasoline and Asia petrochemicals to keep stocks in balance.
The second trader said: "I see a lot of supply coming from Algeria and Russia and a lot of cargoes on offer."
In addition, a couple of traders mentioned this week that the 'reverse arbitrage' from the US to northwest Europe was open. However, chances of any sizeable cargoes being imported into northwest Europe was small, they added.
Additional reporting by Nel Weddle and Linda Naylor
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