European naphtha crack values have plummeted to their lowest level since January 2009, as a combination of weak petrochemical margins, relatively low propane prices and no arbitrage opportunities to ship naphtha to Asia, weigh on market sentiment.
Platts assessed November CIF NWE crack swaps at minus $11.40/b on Monday, October 24, the lowest level for the front month since January 8, 2009, according to Platts data.
The naphtha crack is a measure of the performance of CIF NWE naphtha barrels in relation to physical Brent crude.
In early trading Tuesday, cracks had plummeted further still with sources pegging November almost $3/b weaker at minus $13.40/b.
In recent weeks, the petrochemical sector has been hit hard with margins for producing olefins and aromatics turning negative, forcing petrochemical crackers to trim runs.
Naphtha demand has also been hit hard by a desperately weak propane market, meaning that petrochemical crackers are preferring propane as a feedstock.
On Monday, October 24, Platts assessed CIF NWE propane cargoes at $795.50/mt, a discount of $83.75/mt to where CIF NWE naphtha was assessed.
"They [naphtha cracks] are dropping like a stone," said one trader Tuesday. "There are almost no outlets in Europe so it is a very bearish picture."
With petrochemical buyers such as Dow, SABIC and BASF all shying away from buying all but the smallest naphtha cargoes in Europe, barrels on offer originating from Rabigh and Jeddah in Saudi Arabia are now heading towards the US East Coast but remain unsold, according to sources.
Normally these would be an ideal feedstock for European buyers, but sources said that the cargo sizes -- around 55,000 mt, are such that no petrochemical buyers wants to commit to such a large volume at present.
The only source of bullish sentiment on the horizon, according to traders is some signs of strength in the propane market further forward, meaning that it may be more likely that crackers would switch feedstocks to naphtha from LPG in the coming months.
December propane was heard to be trading at a discount of $36/mt to December naphtha Tuesday, about $15/mt weaker in relation to naphtha on the day.
The shrinking spread is mainly due to a decline in physical naphtha which has fallen by about $45/mt since mid-October, while physical propane has fallen by only $15/mt over the same period.
This relative strength in propane comes about against a backdrop of low propane demand from the traditional heating sector in Northwest Europe and a continuing flow of propane imports into the area.
