Front-month European naphtha cracks soared to an almost 36-month high on Monday while outright cargo prices hit a more than two-year high, despite weak fundamentals in the regional market, sources said Tuesday.
"The crack is reacting to the Asian market only," a trader said Tuesday morning. "There is not a lot of justification for them to be up at this level given demand destruction among local end-users."
Platts assessed front-month naphtha crack spreads at $3.25/b Monday, a sixth consecutive day-on-day rise. Front-month naphtha cracks last breached $3.25/b on December 17, 2007, when Platts assessed cracks at $3.35/b.
Cracks measure the difference between the refined product and the cost of the crude used to produce it.
Added to the recent surge in naphtha's performance against crude was the outright price for CIF NWE cargoes, which breached $800/mt. This was confirmed in a deal done on Monday between Gunvor and Vitol for 12,500 mt of open specification naphtha loading December 15-19 at $804/mt.
Outright prices have not been above $800/mt since September 2008, according to Platts data.
A combination of higher premiums in Asia and general appetite for exporting product out has attracted an armada ships carrying naphtha from Europe towards China, Taiwan and South Korea, the most recent being the Cape Tallinn which was fixed on Monday to take 55,000 mt east.
"European fundamentals are still pretty weak," said one source. "The last time we had cracks like this premiums were much higher. The fact is, high flat prices are dissuading European end-users from prompt buying so it begs the question how cracks have even reached this level."
NWE spot steam cracker margins hit minus $58/mt last Thursday (minus Eur43/mt), driven lower by the rally in European naphtha values. Spot cracker margins have not been this low since January 2010.
Spot margins, which were steeply negative till mid-January, then moved into positive territory and -- apart from a blip in mid-March -- remained there until November, when they were sharply eroded by strengthening crude prices.
"Smaller crackers will really have problems to sustain margins at high naphtha prices," said one end-user.
"Combined with year-end working capital issues and an incentive to run low inventories, it is not the European petrochemical market supporting this high crack," said another source.
December naphtha cracks were heard trading lower during the morning on Tuesday, cooling off to levels around $2.80/b, according to traders.
"The crack is reacting to the Asian market only," a trader said Tuesday morning. "There is not a lot of justification for them to be up at this level given demand destruction among local end-users."
Platts assessed front-month naphtha crack spreads at $3.25/b Monday, a sixth consecutive day-on-day rise. Front-month naphtha cracks last breached $3.25/b on December 17, 2007, when Platts assessed cracks at $3.35/b.
Cracks measure the difference between the refined product and the cost of the crude used to produce it.
Added to the recent surge in naphtha's performance against crude was the outright price for CIF NWE cargoes, which breached $800/mt. This was confirmed in a deal done on Monday between Gunvor and Vitol for 12,500 mt of open specification naphtha loading December 15-19 at $804/mt.
Outright prices have not been above $800/mt since September 2008, according to Platts data.
A combination of higher premiums in Asia and general appetite for exporting product out has attracted an armada ships carrying naphtha from Europe towards China, Taiwan and South Korea, the most recent being the Cape Tallinn which was fixed on Monday to take 55,000 mt east.
"European fundamentals are still pretty weak," said one source. "The last time we had cracks like this premiums were much higher. The fact is, high flat prices are dissuading European end-users from prompt buying so it begs the question how cracks have even reached this level."
NWE spot steam cracker margins hit minus $58/mt last Thursday (minus Eur43/mt), driven lower by the rally in European naphtha values. Spot cracker margins have not been this low since January 2010.
Spot margins, which were steeply negative till mid-January, then moved into positive territory and -- apart from a blip in mid-March -- remained there until November, when they were sharply eroded by strengthening crude prices.
"Smaller crackers will really have problems to sustain margins at high naphtha prices," said one end-user.
"Combined with year-end working capital issues and an incentive to run low inventories, it is not the European petrochemical market supporting this high crack," said another source.
December naphtha cracks were heard trading lower during the morning on Tuesday, cooling off to levels around $2.80/b, according to traders.
