21 June 2013 09:59 [Source: ICB]
Naphtha gains favour among petrochemical buyers because of an improving price spread against LPG
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 12 June.
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 liquefied petroleum gas (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. I think naphtha can cope with the additional demand if there is any," the trader said.
Most traders agree that the naphtha market is still oversupplied.
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