European petrochemical crackers set to push for margins going into June

European petrochemical crackers will have a push on costs going into June, sources said, with cracker margins down 32% in May in the contract market and nearly 60% lower in the spot market.

The easing of COVID-19 lockdowns since beginning of May gave a boost to the feedstock naphtha on the back of rising gasoline demand, and cracker "margins got destroyed this month", market sources said.

In addition, ethylene supply has become less long since mid-May on the effect of unplanned issues and delays in restarts from maintenance, and a similar supply picture was expected in June, market sources said.

On average in May, NWE cracker margins stood at Eur575/mt ($627/mt) in the contract market, around Eur271/mt below April averages, while in the spot market, the drop was more significant, down Eur304/mt from April to around Eur205/mt in May, S&P Global Platts data showed.

Meanwhile, a mixed picture on demand in the key petrochemical derivatives remained, with consumers reviewing their June volume.

Recovery from the pandemic effect was expected to be gradual and depend on the return of the end-user consumption and current product inventories along the value chains.

In polyethylene, LDPE demand was expected to remain steady, especially from packaging applications, with less supply due to the effect from the Borealis Stenunsgund unit outage in Sweden.

However, demand in other PE grades looked lackluster, with "LLDPE and HDPE prices softer, with good availability", a market source said.

In the propylene market – which has been balanced in recent months despite the pandemic, helped by refinery run cuts – supply-demand uncertainties also prevailed. While steady demand was expected from 19 essential applications, including packaging and medical, overall demand may be affected by the slow recovery of the automotive industry, a key propylene consumer, sources said.

Also going into June, increased gasoline demand was allowing European refineries to resume higher rates, which would bring back more propylene supply, weakening the market balance.

"Both ethylene and propylene will be interesting in June. The feedstocks are surely going up," a source said, adding that "ethylene is easier, with balance also improving, but propylene is moving in the opposite direction".

With May bringing a boost to the upstream market, naphtha was expected to remain firm going into June, with a mixture of demand from the gasoline and petrochemical sectors helping.

On average spot prices, CIF NWE naphtha prices stood at $214/mt in May, around $76/mt above April averages, Platts data showed Friday.