Weak naphtha pushes Europe cracker margins to 41-month high

LONDON (ICIS)–European contract cracker margins have risen to their highest since December 2008 on the back of a $53/tonne (€41/tonne) drop in naphtha feedstock prices, according to ICIS analysis on Monday.

In the week ending 18 May, euro-based naphtha costs fell by 4.2% – the drop would have been greater save for a 1.7% strengthening of the dollar. Co-product credits also fell slightly.

Spot margins also rose, but this was mainly due to the stronger dollar and fall in naphtha, as ethylene spot prices were unchanged.

Contract margins based on liquefied petroleum gas (LPG) were also higher, as LPG values fell by 4.6% to their lowest since October 2011.

The ongoing bearish trend in both naphtha and LPG continues to lend weight to the expectation among several ethylene players that the June contract price will settle substantially below the current May contract price of €1,325/tonne ($1,699/tonne) FD (free delivered) NWE (northwest Europe).

Consequently, activity in the ethylene market is at a minimum, with buyers reluctant to commit to fresh business until the outcome of the June contract negotiations is known.

Spot numbers are languishing at about $1,300–1,350/tonne CIF (cost insurance and freight) because of a lack of demand and lengthy supply.

While cracker margins have improved considerably over the past few weeks – the second quarter average to date is double that of the first quarter margin average – ethylene producers are keen to point out that from a year-to-date perspective 2012 is still below 2011, although the gap is closing.

June contract price discussions will be getting underway from next week.

($1 = €0.78)

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