The spot European propane market has struggled to compete for petrochemical interest at the tail end of June, as naphtha prices have been dragged lower by a weakening crude market and propane cargo prices were supported by a closed arbitrage from the US Gulf Coast to Europe.
On Tuesday, large TOT propane cargoes were priced at a a discount of around $55/mt discount to CIF Northwest European naphtha cargoes, compared to a $88/mt discount at about the same time last year.
In the paper market, the discount of the front-month CIF ARA propane swap to the equivalent CIF NWE naphtha swap narrowed to $54.75/mt Monday from $57.75/mt Friday.
"It is too expensive, we are not cracking propane at the moment," said a petrochemical end-user. "Propane [is] competing with ethane, butane has been much better."
Petrochemical buyers use propane and butane as an alternative feedstock to naphtha when prices for the products are favorable.
This typically occurs in the summer, when a lack of European heating demand for propane and a lack of blending demand for butane pushes down prices and both gases more competitive.
Meanwhile, spot butane has seen steady but unspectacular demand, particularly on the spot CIF coaster market, sources said, though prices on the less liquid butane cargo market were also stronger than last year.
Large butane cargo prices were sitting at about 76% relative to naphtha, from around 65% for the same cargoes in late June last year.
Since mid-spring, large propane and butane cargoes have been supported by a closed arbitrage from the US Gulf Coast and Europe, particularly for the larger and more liquid propane cargo market, according to sources.
The poor economics on cargoes coming to Europe had spurred cancellations in the US Gulf Coast attracted available cargoes to Asia, sources said, narrowing the supply of cargoes arriving in Europe largely to those covering term contracts.
"[The cargoes] are basically being done on the basis of cargoes going East," a source said. "Rarely do we see anything coming to Europe."
Lower naphtha prices have also attracted petrochemical buying, limiting interest in stronger butane and propane prices.
The CIF NWE naphtha physical cargo was assessed at $387.75/mt Monday, $1.25/mt lower on the day, and only slightly higher than June 20, when it slumped to a nine-month low of $386/mt due to thin spot demand, ample supply and falling crude prices.
The return from maintenance of one of Total's two Antwerp steam crackers could stoke further demand for petrochemical buying, according to sources, while softening premiums on the propane large cargoes, due to lack of heating demand, could make the complex more competitive.
However, industry sources expect the arbitrage from the US Gulf Coast to remain closed, spurring cancellations throughout July and continuing to constrain supply.
