European petrochemical end-users are reportedly switching away from maximizing the cracking of LPG as Northwest European propane cargoes reached a 22-month high and the gas becomes uncompetitive versus naphtha as a cracking feedstock.
The CIF NWE propane physical cargo rose $3/mt to a 22-month high of $459/mt Tuesday, while in the paper market the front-month CIF NWE propane swap edged to a 35-month high versus naphtha as it was assessed at 90.03% of the front-month CIF NWE naphtha swap, up from 89.67% the previous day.
The last time the front-month propane swap was assessed higher versus naphtha was February 3, 2014, when it was assessed at 90.97% of the front-month naphtha swap, S&P Global Platts data shows.
It is generally considered that propane stops being attractive as an alternative cracking feedstock when it reaches 90% of the value of naphtha.
Northwest Europe propane prices have been rallying since the end of December as a cold spell across the European continent boosted heating demand for the gas, and the spot propane arbitrage from the US to Europe became increasingly difficult to work.
According to trading sources, at least two petrochemical end-users have been re-selling propane in NWE, preferring to maximize the cracking of naphtha.
"We are starting to see signs of switching away from maximizing LPG," a naphtha trader said.
According to an end-user, finding propane is the main problem.
"Coasters have become too expensive, now [propane] is out of the cracking slate," he said.
Another end-user said that it was more profitable to send propane from the US to Asia than to Europe, and this has left Europe a bit short.
"When [the propane/naphtha spread] is minus $48/mt you can start to see reselling of propane and petchems get a different idea of what they want to crack as feedstock...we are reaching a kind of ceiling," he said.
The CIF NWE naphtha physical cargo gained $3.25/mt Tuesday to be assessed at a 18-month high of $508.75/mt, while the front-month CIF NWE naphtha crack swap strengthened 5 cents/barrel on the day to a nine-month high of 50 cents/b, according to Platts data.
