European petrochemical companies are limiting purchases of naphtha feedstock for steam cracking ahead of the fourth quarter, a naphtha trading source said Friday.
The hesitant buying comes despite a recent rise in North Sea propane prices, a feedstock competing with naphtha in the steam cracking process.
"You have to bear in mind that September is a quarter end," the trading source said. "The petrochemical companies don't want to be holding stock at a high price so they're going to keep their spot naphtha buying to a minimum."
Although European naphtha has maintained a discount to propane since September 3, both products have maintained an upward momentum in price since late July, Platts data showed. A petrochemical source said to be economically viable as an alternative feedstock, propane needs to be at most 94% of the price of naphtha.
North Sea propane prices have nearly doubled from around $600/mt in late July to break above $1000/mt by mid-September, Platts data showed, boosted by Asian demand and recent maintenance at the UK's Braefoot Bay terminal, a key European LPG export hub in the North Sea, LPG traders said.
North Sea propane was last assessed at $1023.50/mt at Thursday's close, at a $36.50/mt premium to naphtha.
Friday, the October propane swap was heard pegged at $30/mt above the equivalent naphtha swap, traders said.
With propane now less economic for the steam cracking process, Dow Chemical has sold out two propane cargoes, amounting to around 40,000 mt in total, sources said.
The first was for September 25-30 delivery and the second was done earlier this week, but delivery dates were unknown, traders said. Buyers were also unconfirmed.
Dow Chemical was not available for comment.
"Some are selling LPG and replacing it with naphtha," a petrochemical source said.
The European petrochemical industry typically absorbs around 4 million-5 million mt of naphtha feedstock a month, a combination of term contracts and spot buying, sources say.
However, the trading source added that petrochemical spot naphtha buying has had been low so far in September.
"Spot petrochemical demand has been very poor during September, in fact we've hardly seen any buying interest over the past two weeks."
