The Northwest European naphtha market is in its steepest backwardation for nearly three years, tracking gains in the Asian market, trading sources said Tuesday afternoon.
The spread between the February and March inter-month swap was heard trading at $15/mt Tuesday, the widest since February 17, 2009, Platts data show.
This follows on from a spread recorded at the same level at Monday's close, a rise day-on-day of $2.50/mt.
The NWE naphtha backwardation has been widening since the market came out of contango in early December, but the spread started to make significant gains in January on petrochemical buying and bullish news about refinery shutdowns in the region.
However, traders said they don't expect the strength to continue into February.
"It is interesting at this stage that the backwardation is so strong," a petrochemical source said.
European spreads have been pulled up by their Asian counterpart, with the Japan paper time spread hitting a near two-year high on the Asian close Monday, sources said.
"The Asian numbers are dragging Europe up," a second trader said.
At the Asian close Tuesday, the backwardation in the physical naphtha cargo market continued to widen, hitting an eight-and-a-half month high.
The first-half March/second-half March and H2 March/H1 April spreads were assessed at $6.50/mt and $5.50/mt respectively at the Asian close, up from Monday's $5.50/mt and $5/mt.
Platts data showed that physical spreads were last higher on May 12, when the then assessed H2 June/H1 July and H1 July/H2 July spreads closed at $7/mt and $6.25/mt, respectively.
Trading sources said earlier this week that gains in Asian naphtha were partly due to firmer US and Northwest European gasoline markets, but that strong FOB India premiums also played a part in boosting the physical backwardation.
"The [naphtha] East/West spread has narrowed so it's making it more difficult to bring European product to Asia, so regional buyers those who need naphtha just have to pay up on premiums," a trader said earlier this week.
