NWE olefin producers choose naphtha and propane as marginal feedstock


Northwest European olefin producers have largely shifted to naphtha and propane as a marginal feedstock for their steam crackers, turning down more expensive butane, as per market sources in Platts.
"Butane is definitely out [of the cracking pool], it is going to blenders," a petrochemical end-user said Tuesday, while another added that propane was still in.
This comes as gasoline blenders' incremental buying interest has tightened both the light naphtha market as well the butane barge complex in the Amsterdam-Rotterdam-Antwerp region as well as Northwest European butane seagoing CIF coasters. "The naphtha market has been stronger due to blending demand for West Africa and the US Atlantic Coast," another market participant said, adding it had been a combination of factors with US gasoline commercial stocks at record lows, higher demand for the motor product and issues with US Colonial Pipeline Lines 1 and 2 -- which bring refined products from the Gulf Coast to the Midwest and East Coast.

The CIF Northwest Europe physical cargo rose US$10.75/mt on the day to be assessed sat an almost one-year high of US$442.75/mt Wednesday. The last time it was assessed higher was October 10, 2015,according to S&P Global Platts data In terms of physical premium, the CIF NWE naphtha cargo was assessed at US$6.50/mt above the front-month swap, up from US$4.75/mt the previous day, which represents the highest premium in over three months.
In the meantime, butane barges were assessed at 101.4% CIF ARA versus physical naphtha Wednesday and CIF coasters stood at 96% relative to naphtha. This is both well above the typical threshold of around 90% below which olefin producers prefer to crack gas as opposed to naphtha.
Having said this, butane prices have been retreating over the last days as gasoline blenders focused on mixed aromatics exports to Asia as opposed to blending of winter specification gasoline. Overall, however, the butane complex should remain a blenders market in the weeks to come. According to one market source, spot demand from blenders should pick up next week again and support prices. For the time being, however, lower prices saw some olefin producers looking for butane on CIF coasters if offer levels were sufficiently low.

"I think petchems is still buying butane on coasters when they can," a second market source said. This opportunistic buying interest comes as olefin producers are not in a rush to buy with naphtha being an attractive alternative as well as propane, for those with required steam cracker flexibility.
The November propane/naphtha spread -- the difference between the front-month CIF ARA propane swap and the CIF NWE naphtha swap -- widened to minus $93.25/mt Wednesday from minus $90.25/mt Tuesday. This saw the November propane swap valued at 78.6% relative to respective naphtha swap, thus making propane a viable feedstock for crackers with the required flexibility.

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