Europe's naphtha uptake high despite declining cracker margins

20-Feb-15

Europe's open-spec naphtha uptake continues to be high among petrochemical producers despite a decline in cracker margins, as per sources in ICIS. Higher upstream costs pulled down European naphtha contract cracker margins by €44/ton in the week ending 13 February, their lowest since November 2013, according to ICIS margin analysis. The previous week's analysis showed a 41% and 47% drop in spot and contract cracker margins respectively, primarily on the back of feedstock naphtha gains combined with February ethylene contract price (CP) reductions. However, expectations are high about a correction in March, leaving petrochemical producers with little incentive to drastically cut back on cracker run rates.The fall in margins has not stopped petrochemical producers from stocking up on naphtha, traders said. "[Margin erosion] is interesting as they are all really buying a lot of naphtha," a third naphtha trader said, adding that the real driver behind the buying could be that cracker margins are expected to rise next month as long as olefins contract negotiations result in a rise in values. The fall in spot cracker margins are lower than in contract cracker margins. Bids in the open market for open-spec naphtha are high. "Demand still seems to be there because they are running hard and making money [also as they] have bought less LPG this month," the second naphtha trader said. The naphtha-propane spread has been more favourable to naphtha this year. However, the spread widened recently to three-digit figures. The spread was noted at $110/tonne for March cargoes. Meanwhile, despite a healthy uptake of open-spec naphtha in the window, petrochemical producers are nonetheless cautious about how much ethylene they produce - keeping away from naphtha grades that yield relatively more ethylene, traders said.