Grangemouth shutdowns unlikely to impact oversupplied naphtha market

15 October 2013 17:41  [Source: ICIS news]

LONDON (ICIS)--Switzerland-based INEOS' progressive shutdown of its refinery complex at Grangemouth this week is unlikely to have a major impact on northwest European naphtha supply or prices, industry sources said on Tuesday.

Northwest Europe is well-supplied with regular trade inflow from Russia and Algeria, as well as local product from across refineries within the region.

Market sources added that the wider European and northern African region is oversupplied by an estimated 1-1.2m tonnes per month, which it needs to shift to the US and Asia to keep stocks in balance.

But with a closed arbitrage window to Asia being sustained for weeks now, exports have fallen, and northwestern Europe's oversupply has been a major contributor to the weak sentiment in the naphtha market.

A curtailed production of naphtha at the INEOS Grangemouth site would provide little relief from the oversupply, traders said on Tuesday.

The impact is likely to be felt more by INEOS' customers, the majority of whom are located in Scotland, Northern Ireland and northern England in case they are unable to secure naphtha from elsewhere in Europe.

"The real problem is that naphtha is just so long. We saw offers of 120,000 tonnes of naphtha today," a trader said.

A second naphtha trader said: "Physical [prices] over November swaps is printing at flat, [because of] the reality of a balanced-to-long market."

Although naphtha prices are influenced by market sentiment based on supply and demand, figures also tend to shift with upstream ICE Brent crude oil price movements.

Hence, naphtha prices are more likely to move up only if crude oil price movements are high enough to offset the weak sentiment, as has happened recently.

Prices were assessed at $911-913/tonne CIF (cost, insurance & freight) NWE (northwest Europe) on Tuesday evening.

Besides, market players estimate any reduction in naphtha production will be offset as INEOS will also be shutting down its downstream petrochemical complex at the Grangemouth site, which utilises naphtha as a feedstock.

"[The impact is] minimal as they have also shut the cracker," a third trader said. "It is a strike at the entire site, I understood, so they will have to shut it all down."

The second trader added: "So maybe it takes a little naphtha off the market, some small cargoes."

However, the first trader cautioned that it was still too early to estimate the full impact of the INEOS shutdown on the naphtha sector.

An INEOS spokesperson said regarding the restart of the refinery complex: "In terms of timing we can't put a definitive time on the start up but in 2008 it took more than three weeks for the plants to be brought back on line in a safe and coordinated manner. "

INEOS has begun halting production at its 210,000 bbl/day refinery at Grangemouth ahead of the 48-hour strike at the UK site due to start on 20 October.

The company operates two large refineries in Grangemouth, UK and Lavera, France.

($1 = €0.74)

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By: Cuckoo James
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