Naphtha market in Europe tighter amid pick up in transatlantic and Asian demand

02-Feb-15

The European naphtha market is tighter on certain grades following a pick up in transatlantic and Asian demand, and good petrochemical utilisation in Europe, industry sources said this week, as per ICIS. In Europe, the Mediterranean is tight with more demand than supply but in the north "light virgin naphtha" (LVN) remains long. However, "There is no open spec naphtha on offer, only in the window," a trader said. The market is tight on these grades after months of supply length brought on by slow demand from one or more of its four-pronged downstream industries: European and Asian petrochemical production and US and west African gasoline blending. Now demand seems to be picking up from all sides as gasoline blenders seek more naphtha from Europe, even as naphtha demand swells from the petrochemical sectors in both Europe and Asia. In addition, there is demand for European naphtha from non-traditional outlets in Latin America. European petrochemical demand is up as consumers are less inclined to switch to the alternative and cheaper feedstock propane as the price spread between the two products continues to be narrower than in December. February propane-naphtha price spread has narrowed substantially from US$145-146/ton in early December to the US$60s/ton in January. Propane has become more expensive because of heating demand from Asia and following its use as fuel to run refineries in Europe. “Propane is strong because of cold weather everywhere and especially a strong demand for propane in the east,” the trader said. In general, steam crackers in Europe are set up to switch only 25% of their production to propane. Nevertheless, there is a huge variation as newer crackers often have more flexibility in switching between the feedstocks, while older crackers are often unable to crack propane. Meanwhile, demand for European naphtha from across the pond has shot up. Latin American countries are buying European naphtha because of tighter supply from up north in the US.