Europe cracker margins soar to 8-month high on weakened naphtha

By Nel Weddle

LONDON (ICIS)–European cracker margins have soared by almost 32% to their highest level since the beginning of August 2011 on the back of a drop in naphtha values, according to ICIS margin analysis on Monday.

In the week ending 20 April, a $55/tonne fall in naphtha prices together with a 1% weakening of the dollar, led to euro-based feedstock costs declining by 6%.

Spot margins also improved, but softer ethylene, propylene, butadiene and pyrolysis gasoline (pygas) prices limited the gains.

Naphtha prices fell in line with crude oil last week and because of poor demand from both the petrochemical and gasoline sectors. Prices fell below $1,000/tonne (€760/tonne) CIF (cost, insurance, freight) NWE (northwest Europe) for the first time since early February.

At noon GMT on Monday, naphtha was assessed at $992-1,000/tonne CIF NWE as crude oil depreciated on fears of an escalation in the eurozone debt crisis.

The increase in cracker margins will put pressure on olefins producers to reduce ethylene and propylene contract prices for May. Both are currently at record-high levels of €1,345/tonne and €1,245/tonne FD (free delivered) NWE respectively.

There is already much concern over the derivatives’ ability to pass on costs when, globally, demand is less than buoyant and cheaper alternatives to European product are available.

Spot ethylene and propylene prices have softened because of lengthier supplies. There is heightened interest in Europe as a destination for import tonnes because of the high prices.

However, producers are likely to counter that the upstream markets remain volatile, a sustainable downtrend is unproven and additionally that average cracker margins remain on the low side from a historical perspective.

May contract prices are expected to be settled this week.

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($1 = €0.76)