The discount of the CIF NWE propane cargo swap to the equivalent naphtha cargo swap will remain over $100/mt through to next year, according to trading sources Wednesday, as both markets grapple with tepid regional demand and difficult export economics.
The front-month propane to naphtha discount — which is also viewed as a relative measure of the viability of propane as an alternative steam cracker feedstock versus the more traditional throughput — was assessed $6.75/mt wider at $115.50/mt Tuesday, with January $5.50 wider at $112.50/mt.
By comparison, at the same point last year the December propane/naphtha swaps spread was assessed at a $50.25/mt premium.
Over November, the spread has averaged a discount of $104.03/mt compared a discount of $0.79/mt a year earlier.
Bearish market fundamentals have plagued the two European light ends in the last few months, as seasonality shifts have been canceled out by warm weather, new supply flows and cracker maintenance.
Milder than normal temperatures on the continent have removed any uptick in demand for propane as a heating fuel and the gas has remained in the cracking pool because the product has not rebounded from cheap summer prices.
“I think it is maxed out for the rest of the year for sure,” a source said, referring to LPG cracking activity on the back of the wide discount.
Increasing exports of US-origin volumes have also shifted market fundamentals lower. Inbound cargoes from the Gulf Coast have added length to only flat-lining, and already maxed out, petrochemical demand, providing a ceiling for prices in the process.
Large refrigerated propane cargoes are currently pricing around $500/mt lower than at the same point in 2013, representing an approximate 50% fall in prices.
“LPG keeps replacing naphtha in the cracking pool,” an olefin producer said, adding that the European naphtha market has not reached a floor yet as there was no improvement in sight.
“The open spec cargoes are really difficult to place,” a second trader said.
The naphtha market, which had been in contango since mid-summer due to lackluster petrochemical demand, oversupply in Asia, and Shell’s Moerdijk cracker’s unplanned shutdown in early October, has been rebounding in the last nine days from multi-years low as Asian crackers came back from maintenance and gasoline blending was seen increasing.
Tuesday, the December CIF NWE naphtha crack swap rose to minus $8.05/barrel from minus $8.70/b at market close Monday, and the contango narrowed with the December/January contango in particular contracting to around $1/mt from $3.25/mt. At noon London time Wednesday, the December crack swap was heard trading at minus $7.40/b, while the December/January spread was pegged flat.
“There are still quite a few offers [for open spec cargoes] but not many people are keen to sell anymore,” a naphtha trader said. “The physical situation seems to be changing a bit with better demand and product being cleared from tanks.”
According to a second naphtha trader, reformer demand is robust, blending demand is very strong and demand from petrochemical end-users is rising in Northwest Europe.
However, according to some market participants, fundamentals in Europe remained mixed as there were still a few hundred thousand metric tons of naphtha in storage tanks and most petrochemical end-users continued to maximize LPG cracking.
“I’m being offered lots of naphtha out of tanks, everybody wants to empty their tanks before year-end,” an end-user also said The December propane to naphtha discount was pegged at $115/mt in early trading Wednesday.
– Platts.com
