Cracker economics under pressure from falling European crude C4 demand slump, oversupply

03-Jul-13

A slump in demand coupled with an oversupply in the European crude C4 market is exerting pressure on overall cracker economics, as per sources in Platts. The current slump started in April with prices falling to US$825/mt FD NWE Friday, down from US$1840/mt FOB Rotterdam on April 5. The July contract fell to Eur 1000/mt (US$1306/mt) FD NWE from an all-time high of Eur 2525/mt FD NWE in August 2011, with spot FOB Rotterdam prices crashing to US$825/mt, down from the June 2011 all-time high of US$4772.50/mt The butadiene slump was triggered by a continuation of the crash in auto and tire demand. This has placed pressure on crude C4 prices as producers seek to co-crack C4 in an effort to tackle butadiene oversupply. Co-cracking C4 involves seeking a better economic use for product; however, it does not tackle the problem of oversupply and the losses incurred by cracker operators have to be borne by the more profitable ethylene stream. The negative value of the C4 chain carried by key ethylene and propylene streams means C2 and C3 contracts were needed to compensate cracker operators for the collapse in butadiene prices, sources said. Ethylene sources said that they were concerned by the collapse in butadiene prices. Ethylene and propylene contract prices were at a rollover of Eur1,170/mt FD NWE and Eur1,040/mt, respectively, Thursday. The rollover was supported by a small increase in average feedstock naphtha prices. Naphtha averaged US$833/mt CIF NWE in May, compared with US$844/mt in June.