London — The return of seasonal gasoline-blending demand, paired with healthy interest from petrochemical buyers, has pushed most of the butane complex in Northwest Europe back to levels last seen at the peak of winter.
Those swift price gains were seen over the last week particularly on the CIF coaster and inland barge market, which swept to their highest levels since January, while large cargo levels rose to their highest levels since December.
On Tuesday, butane CIF coasters in NWE were assessed at $600/mt, or 91% relative to naphtha, the highest value relative to naphtha since January 18. Inland barges were assessed at $585/mt, or about 89% on a FOB basis, and at 91% on a CIF basis, the highest level since January 23.
Meanwhile, large CIF cargoes rose late last week to $590/mt, or 89.5%, the highest level since December 12 of last year, pushed higher by recent public buying interest from petrochemicals major Borealis.
Those price gains, which broke the butane complex out of a lengthy period of nearly-flat trading that lasted through much of the late winter and spring, have been sparked by the return of demand for butane as a gasoline-blending component. Butane can only be used in winter-specification gasoline, and so additional demand typically rises in the autumn and tails out in the spring.
"Butane is slowly changing from a typical summer market dominated by the petchem demand into a new market where refineries are starting to export less butane, and some gasoline blending demand has definitely appeared," said a market source.
While the official switch to winter-grade arrives in September, demand has picked up steadily through August, particularly on the inland barge market, sources say. Blenders often prefer barges, because the smaller size allows for more flexibility in size and the timing of delivery, sources say, but demand has also been heard on the CIF coaster market, which is usually more dependent on petrochemical interest.
However, sources say that the pick-up in blending demand, instead of pricing butane out of the petrochemical mix, has so far not hurt demand.
"I think it has to do with propane also getting very expensive so it still makes sense to crack butane," said a source. "Demand is very healthy."
Both butane and propane compete with naphtha as alternate petrochemical cracking feedstocks. With both at steep discounts most of this year, petchems have had a strong incentive to crack as light as possible, even as both LPG markets have strengthened in recent months, according to petrochemical and naphtha sources.
However, the continued strength of that combined demand will depend not only on petchem buying, but also overall gasoline-blending demand and arbitrage economics for taking gasoline from Europe to the US. Last year, a closed arbitrage smothered demand for butane as a blending component after the January peak, leaving the product dependent on petchem buying just when demand from blenders would normally have been at its height.
