FocusNo respite for oversupplied Europe naphtha despite trader hopes

05 July 2013 15:23  [Source: ICIS news]

LONDON (ICIS)--The northwest European naphtha market continues to be oversupplied despite traders hoping for a tightening on the back of exports and good downstream cracker run rates, sources said on Friday.

Independent stock data gathered at the Amsterdam Rotterdam Antwerp hub reveal naphtha supply has been mostly stable since early June, indicating there has been no substantial improvement in demand.

European downstream cracker run rates are at around 85% on average although run rates are estimated to be at or above this level in northwest Europe but slightly below it in the Mediterranean, because of differences in demand and economic factors.

Traders had been expecting the oversupply to be mitigated at some point by better cracker run rates.

A naphtha trader said: “We see no additional demand from the improved cracker run rates. Marginally better, but it is still pretty long. I don't see any demand form end users.”

Even the resumption of on-spec production at German petrochemicals major BASF's cracker at Antwerp, Belgium in late June has had minimal impact on naphtha fundamentals, sources said.

The cracker, Europe's largest, has the capacity to produce 1.08m tonnes/year of ethylene and had been on planned maintenance since the end of April.

“BASF has come back on stream, but ethylene demand is stable. It creates a bit of extra [naphtha] demand, but it [the market] is still oversupplied. On the front there is still a lot of naphtha around,” a major petrochemical buyer said.

Meanwhile, naphtha is being exported from Norway and Russia to Asia, the trader said. “That helps a bit [in managing oversupply].

However, the exports are being offset by imports from other regions into northwest Europe, including from the Russian Ust Luga terminal.

“Ust Luga [volumes] are still arriving,” the petrochemical buyer added.

“Some [are being shipped] to Europe, some to Asia,” the trader said on naphtha shipments from the terminal.

A third trader said: “There are plenty of naphtha offers at the front here.”

In addition, traders were also looking into the possibility of exporting naphtha from the US to Europe because of an open arbitrage window.

The “reverse arbitrage” window from the US to Europe is open, partly as a result of excess supply in the US.

The export possibility is unusual as the normal trade flow is from Europe to the US. Naphtha is used as a blendstock in European gasoline regularly exported to the US.

"Demand for gasoline [from the US] is bad," the petrochemical buyer added.

A fourth trader said: "The market is very quiet. It is hard to sell [naphtha]"

Naphtha is a petrochemical feedstock and is used for gasoline blending purposes.

($1 = €0.77)

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By: Cuckoo James
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