European contract cracker margins based on naphtha see sharp fall for second consecutive week

12-Jul-11
European contract cracker margins based on naphtha feedstock fell sharply for the second week in a row, following an 8.3% jump in upstream costs, according to ICIS. The contract margin fell by nearly €130/ton (US$186/ton) in the week ending 8 July because of an almost US$60/ton rise in naphtha prices, combined with a 1.8% strengthening of the US dollar vs the euro. The loss was slightly mitigated by a 2.6% gain in co-product credits – notably higher fuel values. Spot naphtha margins plunged by nearly €190/ton to €318/ton, the lowest margin since mid-January, because of weak ethylene and butadiene spot prices. Ethylene spot prices are assessed around €850/ton FD (free delivered) NWE (northwest Europe). This compares with the prevailing July contract price of €1,090/ton FD NWE. Spot and contract prices have been weakening for the past two months because of lengthening supply and slow demand, which has led to much industry speculation over the extent of cracker cutbacks. Until now most player opined that the margins were large enough for producers to absorb, thus avoiding reduction in crackers. The crunch on cracker margins will push operators to tailor output very closely to that of demand. European olefins players have adopted a wait and watch policy to determine whether the signs of recovery on the Asian market will have any impact in Europe.
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