European steam cracker margins hit by depressed petchem market

Lackluster petrochemical demand in the European complex has seen steam cracker feedstock margins for both butane and naphtha fall this month, while propane margins have seen some support.

A somewhat balanced European LPG market has emerged amid dwindling demand as the market adjusts to the upcoming summer lull.

LPG buying appetite is heavily dictated by seasonal trends, with values notably supported by heating demand and gasoline blending in winter, before coming off heading into the summer season.

Platts, part of S&P Global Commodity Insights, assessed the Platts CIF NWE naphtha steam cracker margin, a measure of profitability for the units which produce both propylene and equally-manufacturing sensitive ethylene, at average $268.51/mt for the week ended April 14, versus a four=week average of $271.58/mt, S&P Global data showed.

Cracker margins for butane also slid on the week to $527.29/mt, a fall of $3.74/mt versus the four-week average. Meanwhile, propane margins stood at $442.29/mt, up $16.46/mt on the longer-term average.

Platts assessed the front-month CIF NWE propane swap at a $169.25/mt discount to the equivalent naphtha swap, a weekly high and wider by $2.75/mt on the day.

Those falling margins for naphtha left it as the least preferred petrochemical feedstock for steam crackers. Meanwhile, LPG sources have cited stronger margins for propane cracking even though there was little optimism for prices in the medium to long term.

"Right now, the margins are strong for propane cracking but, longer term, I would not expect them to stay strong, second half of the year I expect the margins to fall," an LPG source said.

"There is pressure on the complex because of PDH build out in China," a second trader said. "The huge capacity China will build out, which if utilized even to 70%, will bring lots of length to the market downstream."

LPG demand slumps

With the seasonal downturn in demand, both propane and butane prices have dropped to multi-month lows of late with plentiful supply and weak demand weighing on fundamentals, sources said.

As such, both propane and butane prices have dropped to multi-month lows of late with plentiful supply and weak demand weighing on fundamentals, sources said.

Platts assessed the propane CIF Northwest Europe market at $515.75/mt on April 17, down $4/mt on the day, while butane CIF NWE large cargoes dropped $7/mt to $562/mt.

Marginal petrochemical profits have dampened sentiment, with sources painting a bearish picture for the months ahead. "The market is dead, there is no interest from crackers and blending [for butane]," one LPG trader said.

With margins sliding in Europe, some crackers have been closed, with the market focus shifting to the East. Notably, players have begun to speculate on how additional Chinese propane dehydrogenation units will dictate fundamentals going forward.

Tight derivatives drive naphtha

Supply tightness in the European market for petrochemical products and derivatives, especially propylene, was supporting the pull of naphtha.

According to a Europe-based trader source, "more spikes in petrochemical demand for naphtha" could be expected because "the European petrochemical market has had consistent supply issues for some products".

Thus, despite relatively low margins, demand for naphtha, especially light grades, to go into European petrochemical production can be expected to remain robust in the near future.

That resilience in market sentiment regarding strength of demand for naphtha underpinned the European market's steepening backwardation.

Platts assessed the April/May spread for Platts CIF NWE naphtha at $8.50/mt on April 17, up from $4/mt on April 9.