The European physical naphtha market and forward spreads have come under heavy pressure in recent days as weak LPG values have led some petrochemical end-users to turn their attentions to cracking propane, traders said Friday.
Platts assessed CIF Northwest European naphtha cargoes at $944.25/mt on Thursday, $7.75/mt lower from Wednesday, but the most significant, recent move has been the declining premium of physical cargoes to January CIF NWE swap values.
On December 27, Platts assessed CIF NWE cargoes at $960.75/mt, representing a premium of $13.50/mt to January CIF NWE swaps. The physical premium to January CIF NWE swaps was assessed Thursday at just $2/mt, while the January/February CIF NWE spread has also contracted substantially during the same period.
Traders have attributed the weaker complex largely to increased petrochemical end-user buying interest for propane, as unseasonably warm weather has meant heating demand for the fuel has been far less than anticipated.
It was widely reported Thursday that Saudi Basic Industries Corp. had bought 20,000 mt of propane into its Tees petrochemical complex in the UK for prompt delivery dates. According to Platts vessel-tracking software cTrack, the BW Denise vessel is currently located at the Tees site.
Sabic declined to comment on reports of the purchase.
"They [end-users] are buying propane and butane now," said one trader. "It's quite compelling economics right now."
Other petrochemical end-users were also said to be turning their attentions towards propane, with a second cargo rumored to be heading towards a different end-user for end-January delivery, though this could not be confirmed.
Sources did question as to whether propane buying is likely to have a sustained, significant impact on the naphtha market, with fairly limited volumes of propane available.
"I don't think there are huge amounts for them [end-users] to buy," said one trader. "At the same time end-user margins are pretty good so feedstock demand itself should be pretty good."
