LONDON (ICIS)--European naphtha crack spread hit a four-month low this week as demand dried up, industry sources said on Tuesday.
A crack spread is the price difference between crude oil and naphtha, calculated in US dollars per barrel.
The naphtha March crack spread weakened to minus $6.70/bbl late on Tuesday morning, the lowest it has been since October last year.
A naphtha buyer said: "For sure, the market is very very weak. The crack is -$6.70/bbl for March. I think there is lack of demand here in Europe especially from petchems."
Naphtha is unable to attract much buying interest from the petrochemical sector in Europe as cracker run rates are being kept low at an estimated 80% of plant capacity.
Moreover, alternative feedstock propane was selling at least $100/tonne cheaper last week, which made it the feedstock of choice among petrochemical producers.
The poor demand has led some petrochemical buyers to try and re-sell naphtha. "Some of them even offered me product. They've been selling instead of buying," the buyer said.
Meanwhile, demand from other naphtha outlets such as the Asian petrochemical sector and the US gasoline market remains muted.
The price spread between Europe and Asia stood at $20/tonne on Tuesday morning, unchanged from Thursday 6 February.
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 but high freights have held traders back.
However, there are signs the high freight rates that kept the market from exporting to Asia over the last few weeks might be dropping off.
The buyer said: "What I've been hearing is maybe the freight is a little bit weaker this week, which would be good news for the market. I need to check if this is going to continue."
However, demand in Asia is muted because of the heavy cracker maintenance season lasting until June. Six crackers in Japan - the key export destination for Europe - will be taken offline between February and June.