Europe naphtha prices fall in response to Asia weakness

14 January 2014 16:08 Source:ICIS News

LONDON (ICIS)--Northwest European naphtha prices have fallen as the industry reacted to a weaker Asian market, sources said on Tuesday.

Northwest European cargo prices fell from $924-926/tonne CIF (cost, insurance & freight) NWE (northwest Europe) on Monday to $915-917/tonne on Tuesday.

The February crack spread was down from minus $3.70/bbl on Monday to minus $4.20/bbl on Tuesday.

Earlier today in Asia, the naphtha intermonth spread tumbled to a month’s low on the prospect of dwindling demand as end-users were widely expected to use more liquefied petroleum gas (LPG) given a weaker LPG market.

Previously, Asia’s naphtha crack spread had surged to the highest level in nearly 11 months on Friday, supported by a flurry of physical deals and rising crude futures.

Europe is structurally long on naphtha, and has in the past few weeks been dependent on exports to Asia to offset weak demand from the US gasoline and the domestic petrochemical markets. 

A slowdown in Asia was thus picked up fast by European traders.

European petrochemical demand remains dampened by ongoing competition from the LPG market.

Propane February swaps were trading at a discount of $96/tonne to naphtha this week, widening from $60/tonne last week, making it the feedstock of choice for petrochemical producers in Europe.

A trader said: "[The] east [is] weaker. [There is] length in NWE."

The arbitrage window to Asia is still technically open, with the price spread between Europe and Asia at $17/tonne for February swaps late on Tuesday morning, but traders are no longer sure of the possibility of any uptake in product in the weaker Asian market.

While dependent on factors such as freight rates, a minimum spread of $15-20/tonne is generally considered to be necessary for an arbitrage window to open east.

Additional reporting by Felicia Loo

By Cuckoo James