Wider arbitrage window to Asia supports Europe naphtha
Cuckoo James
24-Jul-2014
By Cuckoo James
LONDON (ICIS)–A wide-open arbitrage window to Asia is supporting the European naphtha market, while gasoline and domestic petrochemical demand has become sluggish, industry sources said this week.
The naphtha arbitrage window from Europe to Asia has opened
wider for the fifth consecutive week, leading to an increase
in naphtha exports out of Europe.
A petrochemical producer noted the price spread between
northwest Europe and Asia naphtha at $21/tonne on Wednesday
morning, up from $18/tonne the previous week and $16/tonne
the week before that.
New shipping fixtures reveal a minimum of 295,000 tonnes of
naphtha was booked from Europe to Asia on Monday and
Tuesday.
A naphtha trader said: “They [Asia] are getting a lot of
naphtha from the Med.”
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.
Europe is structurally long on naphtha and has to export to petrochemical markets in Asia and the gasoline sector in the US to keep stocks in balance.
Naphtha sales into the European gasoline sector – which then exports the gasoline to the US – is suffering because of a steep rise in gasoline stockpiles on both sides of the Atlantic.
High refinery runs in the US is leading to a surge in gasoline as the country prepares for the end of the peak summer driving season. Weekly stock data from the Energy Information Administration revealed a build of 3.4m tonnes in gasoline stocks in the US last week. A build up in stocks is bad news for European gasoline exports to the US.
The loss of European gasoline exports to the US, coupled with a widening price spread between gasoline and blendstock naphtha, has suppressed demand for naphtha from this key sector.
In the downstream petrochemical sector in
Europe, producers are able to purchase July propane
cargoes at roughly $182/tonne cheaper than naphtha. The wide
spread between both products keeps propane the feedstock of
choice among petrochemical producers who go on to maximise
propane use whenever they can.
In general, steam crackers in Europe are set up to switch
only 25% of their production to liquefied petroleum gas
(LPG). Nevertheless, there is a huge variation as newer
crackers often have more flexibility in switching between the
feedstocks, while older crackers are often unable to crack
propane.
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