New York — Prompt European naphtha values have fallen to long-term lows, with the demand destruction being wrought in all markets by COVID-19 also collapsing the spread between the crude oil product and propane -- a competitor petrochemical feedstock.
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The naphtha cash differential -- the spread between CIF NWE naphtha cargoes and the April CIF NWE naphtha swap -- was assessed at minus $21.50/mt Wednesday, the lowest since 2008, S&P Global Platts data showed.
Meanwhile the naphtha swap's premium to the April CIF NWE propane large cargo swap was assessed at $18.75/mt, the lowest since December 2017.
Naphtha market structure -- which averaged a $9.46/mt backwardation in February -- flipped into contango on March 12 as the price of prompt physical cargoes cratered.
The European naphtha market has seen unprecedented pressure this month as many countries introduced lockdowns on their populations, leading to a lack of clarity about future supply and demand fundamentals, sources said.
CIF NWE naphtha was assessed at $126/mt on Monday, the lowest since March 1999. The market had recovered to $159.25 by Wednesday, though sentiment remained weak.
Talk about possible refinery run cuts in Europe and petrochemical producers' feedstock demand have exacerbated the pricing moves, along with frequent swings in the broader oil complex.
While naphtha typically commands a much larger premium over other petrochemical feed-stocks, cracking demand in Europe has fallen sharply given the general air of uncertainty generated by the coronavirus pandemic.
Usually, propane would need to reach about a $60/mt discount to naphtha before any reduction in its use and an increase in naphtha throughput would be considered, sources have said.
The naphtha-to-propane spread has roughly halved over the past week. It was assessed at $105/mt at the beginning of the month.
Still, the narrow spread might not translate into petrochemical end-users looking to utilize the relatively cheaper naphtha.
"The downstream [petrochemical products] demand is not great," a market source said.