European naphtha crack values have plummeted to their lowest level since January 2009, as market sentiments get weighed down by a combination of weak petrochemical margins, relatively low propane prices and no arbitrage opportunities to ship naphtha to Asia, as per Platts. Platts assessed November CIF NWE crack swaps at minus US$11.40/b on Monday, October 24, the lowest level for the front month since January 8, 2009. The naphtha crack is a measure of the performance of CIF NWE naphtha barrels in relation to physical Brent crude. In recent weeks margins for producing olefins and aromatics have turned negative, forcing petrochemical crackers to trim runs. Naphtha demand has also been hit hard by a desperately weak propane market, meaning that petrochemical crackers are preferring propane as a feedstock.
Petrochemical buyers such as Dow, SABIC and BASF prefer to buy the smallest naphtha cargoes in Europe. Barrels on offer originating from Rabigh and Jeddah in Saudi Arabia are heading towards the US East Coast but remain unsold. Normally these would be an ideal feedstock for European buyers, but their cargo size of around 55,000 mt, makes it difficult for any petrochemical buyer to currently commit to such a large volume. The only source of bullish sentiment on the horizon, is some signs of strength in the propane market further forward, meaning that it may be more likely that crackers would switch feedstocks to naphtha from LPG in the coming months.
December propane was heard to be trading at a discount of US$36/mt to December naphtha Tuesday, about US$15/mt weaker in relation to naphtha on the day. This relative strength in propane comes about against a backdrop of low propane demand from the traditional heating sector in Northwest Europe and a continuing flow of propane imports into the area.