FocusEurope naphtha players eye petchem demand as crude softens

25 July 2013 13:06  [Source: ICIS news]

LONDON (ICIS)--Northwest European naphtha players are eyeing rising demand from the petrochemical sector as softer ICE Brent crude oil futures and slow export demand exert downward pressure on prices, sources said on Thursday.

An active naphtha trader said it was seeing exceptional demand for naphtha from the petrochemical sector. "[There is] decent petchem buying. I know people are surprised, but I've sold eleven 12.5 KT cargoes all for delivery by 31 July. But I keep hearing 'slow demand'."

The price spread between alternative feedstock liquefied petroleum gas (LPG) and naphtha stood at around $60/tonne (€46/tonne) for August spot cargoes, reducing the pull towards cheaper feedstock LPG.

The feedstocks are used to produce ethylene, propylene and other widely used petrochemicals in Europe. A closing price gap provides buyers with the choice to switch to the normally more expensive naphtha without compromising on margins.

The trader said: "The propane-naphtha spread has narrowed to $60/tonne and this has sparked petchem interest. [But] they have been keeping the propane cargoes as well, they are not selling."

A second naphtha trader said petrochemical demand had picked up. "Yes. Because butane prices [are] so high – may as well buy naphtha," it said.

A third naphtha trader agreed, but said it was not significantly unlike the same period last month. "As we move into the new month there is a little more interest, naturally."

The August naphtha crack spread – the price difference between naphtha and crude oil – is holding steady at minus $9.00/bbl partly as a result.

A fourth trader said: "Yes, we are still seeing decent demand. So [French president Francois] Hollande was right, then. There is no crisis in Europe."

Nevertheless, domestic petrochemical buying alone is insufficient to hold up naphtha prices as Europe is structurally long and needs to export excess product either as blendstock in gasoline exports to the US or as petrochemical feedstock to Asia.

However, both these export destinations are resisting product from northwest Europe at the moment, sources said.

"There isn't a lot of blending demand [from the US market] so it doesn't help. [Plus,] East looks like it is struggling to place a lot of the barrels that are heading that way," the first trader said.

The arbitrage window to the US is not open, the third trader said, adding "but I am sure something will head there".

Meanwhile, the naphtha price spread between Asia and northwest Europe was stable and barely profitable at $19/tonne this week.

Cracker turnarounds in Asia are not likely to help fuel demand either, sources said. The first trader said: "[The] trend is weakening. A lot of turnarounds [are] coming up and that is why the East is wobbling a bit, there will be less demand in the near future."

"Also, they are looking for lighter cargoes because of the weak butadiene [BD] market," the first trader added.

The resultant oversupply is exerting downward pressure on naphtha values, with prices this week falling from highs of $905-907/tonne CIF (cost, insurance & freight) NWE (northwest Europe) seen last week.

Meanwhile, September ICE Brent crude oil futures have fallen from $108.56/bbl (15:30 GMT) last Thursday to $106.81/bbl at 10:21 GMT today.

The uncertainty has brought trades in the open market platform to a standstill, with no deals taking place this week. The first trader said: "The bids are pretty low in the window, the offers are quite high."

DATE  25 JUNE  2013  25 JULY 2013
 PRICE   $826-828/tonne  $873-875/tonne

Naphtha CIF NWE prices

Northwest European naphtha is used as a blendstock in gasoline stocks exported to the US, and as a petrochemical feedstock.

($1 = €0.76)

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By: Cuckoo James
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