NWE naphtha swap's premium to propane hits 3 month low on tight supply

12-Jun-13

The premium commanded by the naphtha swap over the equivalent propane swap has hit a three-month low, reflecting the tightening propane supply in Northwest Europe, according to market sources, as per Platts. The CIF NWE naphtha-propane front-month swap premium fell to US$106.75/mt Monday, its lowest since February 28 when it was assessed at US$98.50/mt. Over the past two weeks, the naphtha-propane premium has been contracting steadily from US$161.25/mt on May 28. The bullish market in Asia drawing in cargoes was supporting propane in NWE, said a source. Cargoes from both the US and West Africa were heard heading to Asia, instead of Europe, leaving the European supply thin on the ground. "There are hardly any imports into Europe," the trader said, adding that "there is not enough propane in Northwest Europe to give to all crackers." A recent sell tender for West African propane and and butane is also likely to head to Asia. Crackers, on the other hand, have been ramping up propane runs, partly to benefit from the lower prices compared with naphtha, and partly due to the high ethylene yield. European ethylene spot prices were buoyed by greater derivative offtake, sources said, reaching an eight-week high of Eur982.50/mt (US$1299/mt) FD NWE Monday. "We have canceled one export and are trying to optimize our system with swaps as a result of better demand," an ethylene producer said, adding that cracker rates were higher at 85%. “To get a true picture of demand, we need to wait until the cracker turnaround season ceases in Europe," another producer said. BASF's 1.08 million mt/year steam cracker in Antwerp, Belgium, is expected to restart in the H2-June, while BPRP's 540,000 mt/year steam cracker in Gelsenkirchen is expected to restart in the H1-July. A trader said the naphtha-propane premium might well continue narrowing, which could be bullish for naphtha. "Asia could be considering cracking more naphtha, but it would be very strange to do that in Europe this time of year," said a European industry source. Normally the use of propane as a petrochemical feedstock rises in the summer months because the price falls due to less demand for heating.