MOSCOW (MRC) -- Northwest European CIF naphtha cracks have flipped positive and hit an 18-month high last week amid tighter supplies and robust demand, reported Chemweek with reference to OPIS and IHS Markit data.
The naphtha/Brent crude crack spread, a measure of naphtha's margin for refiners, reached 10 cents/bbl at the close of business on 22 June, and remained positive at 3 cts/bbl on 23 June, according to broker data.
Lower refinery runs alongside decreased imports into northwest Europe, particularly from Russia, curtailed the supply of naphtha. Steam crackers did not reduce run rates as much as refineries, owing to the need for plastic hygienic products amid the COVID-19 pandemic, which supported naphtha demand, according to IHS Markit analysts.
"Demand for naphtha cracking remained quite steady - within Europe and also for exports to the East," says IHS Markit principal research analyst Eleanor Budd. "This has supported naphtha."
The CIF northwest Europe naphtha spot price hit USD379.50/metric ton on 23 June, a net gain of USD101.50/metric ton from the start of the month, according to OPIS data. Brent crude front-month futures climbed USD6.22/bbl to USD43.60/bbl on 23 June over the same period, according to data from the Intercontinental Exchange.
During April and May, European naphtha demand was bolstered by high exports to Asia, with April inflows to Asia reaching a record 3.4 million metric tons, further tightening West of Suez supplies, according to OPIS data. As lockdown measures due to COVID-19 ease, road fuel demand has slowly returned, and gasoline blending demand for naphtha has further tightened supply, Budd says.
The propane spread to naphtha has deepened to stand at minus USD86/metric ton Tuesday, compared with plus USD8/metric ton a month earlier. Still, naphtha market players remain sanguine as the petrochemical sector is seen moving away from naphtha to lighter feeds in the prompt, and about 250,000 metric tons of propane are pegged to arrive into northwest Europe from the US to date for July, according to OPIS LPG tracking data. Sources do not expect the switch to propane will last, as LPG supplies from the Middle East will fall, drawing US exports to Asia and away from Europe.
US propane exporters are expected to secure a higher netback moving their cargo to Asia rather than Europe, according to an OPIS analysis of US Gulf Coast LPG netback values from Asia and Europe. In June, the netback from Asia is 5.548 cts/gal versus 0.324 cts/gal from Europe. In July, Asian exports secured a netback of 3 cts/gal against 1.744 cts/gal from Europe, OPIS data show.
The opening up of the economy has seen demand for refined products pick up and, in turn, refiners are raising runs. While this will inevitably yield more naphtha, much of this could be absorbed by improved gasoline demand and the subsequent buying interest for naphtha by gasoline blenders, IHS Markit analysts say.
As MRC informed before, unplanned outages at Sabic's Wilton, UK, cracker and Borealis' Stenungsund, Sweden, cracker may cause availability shortages in the European propylene coastal market. The Wilton cracker, which has an annual propylene capacity of 415,000 mt was shut on June 17 due to technical issues and came back online in two weeks. Borealis' Stenungsund cracker unit has remained offline longer than initially anticipated, after it was shut following a force majeure declaration at the site on May 11. Sources said that the unit has been offline longer than initially expected with no confirmed startup date. Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 595,170 tonnes in the first five month of 2020, up by 10% year on year. Deliveries of all ethylene polymers, except for linear low density polyethylene (LLDPE), rose partially because of an increase in capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.