NWE steam cracker margins at 16-week high amid recovery in spot ethylene prices

Northwest European steam cracker margins spiked at a 16-week high, Platts data showed Wednesday, amid a recovery in spot ethylene prices and softening naphtha and LPG markets. Cracker margins, assessed at US$247.89/mt Tuesday, were last higher March 19 when they stood at US$254.84/mt. They hit a five-month low of minus US$12.63/mt on May 21 amid weak ethylene prices, which had hit Eur855/mt on April 29. European ethylene spot prices have since rebounded to a 10-month high of Eur1,061.50/mt ($1,445.12/mt) FD NWE on July 2 as renewed domestic demand and a rise in exports in June supported prices. The spot price was assessed by Platts at Eur1,050/mt FD NWE Tuesday. The rise in ethylene spot prices has contrasted with propylene, whose spot price hit a six-month low of Eur1,079/mt FD NWE on June 18 and was assessed at Eur1,087/mt FD NWE Tuesday. Ethylene's strength was also reflected in the European contract price for July which settled at Eur1,220/mt FD NWE, up Eur50/mt month on month. Margins have also improved as a result of falling naphtha flat prices from their year-to-date high of $974.50/mt on June 20 when crude futures were near nine-month highs amid tensions in Iraq. Since then, naphtha flat prices have followed the downward trend of crude futures prices and on July 8, the CIF Northwest European naphtha cargo value was assessed at $942.50/mt, $2.50/mt lower on the day to a 27-day low. However, according to naphtha trading sources, improved margins have not led petrochemical end-users to increase their cracking rates. "Petrochemical margins are good but we have yet to see increased demand," said a trader. "Buying seems very quiet with only reformers buying," he said. LPG sources said cracking rates were already at healthy levels. "Most of the crackers are running at full whack," a trader said, I think the problem has been and is rather the downstream demand rather than the margin," said a petchem end-user, adding that meant it was unlikely cracking rates would be hiked. Some petchem users of LPG as an alternative cracker feedstock were heard to be consuming the highest possible volume of both butane and propane on the back of the rise in ethylene prices, and subsequent improvement in spot cracker margins. "Propane and butane are both being maximized," a source said. Fundamentals in the large LPG markets have not pointed toward a large pick-up in demand, however, with market sentiment mostly balanced. CIF NWE large cargoes of propane were assessed at $764/mt Tuesday, down $3/mt from Monday, with butane cargoes assessed at $791/mt, down US$4/mt. LPG prices traditionally underperform naphtha in summer, as propane loses support from winter heating demand and summer gasoline grades require less butane for blending. This often leads to increased buying from the petchem industry for the products as a feedstock, depending on co-product economics.