London — Speculation is rising that propane could once again gain further favor with petrochemical buyers in Europe following a volatile 2018, after large propane CIF cargoes reached their biggest discount to CIF naphtha cargoes in nearly three months Thursday.

Propane's discount to naphtha was assessed Thursday at $71/mt for physical cargoes, the largest discount since November 13 of last year. That widening has also been seen on the paper market, with the propane February swap at a $79/mt discount to the naphtha February swap, and March at an $87/mt discount.

"In March the pro-naps are looking pretty weak again, wider than we have had it for quite some time," a source said. "So it should probably be getting back to full cracker levels," when petrochemical steam crackers use the maximum amount of propane possible, instead of naphtha.

Meanwhile, naphtha -- while still long in Northwest Europe -- has strengthened slightly from January, according to a market source.

"Naphtha is actually drawing in tank in ARA," said a market source, referring to storage in the Amsterdam-Rotterdam-Antwerp trading hub. "So I don't see a huge excess in the prompt."

The level at which propane becomes an attractive alternative to naphtha varies for every petrochemical company, and is also affected by the relative value of various end-products used to make plastics. However, while in the past, some used a $20/mt discount as a 'rule of thumb' to mark the point at which propane was attractive as a feedstock, volatility over 2018 has also remapped what is considered a good deal for petchem players, market sources say.

The propane-naphtha discount volatility has largely been due to the fluctuations on the crude market, market sources say, which tend to affect naphtha outright prices more directly than propane.

On December 28 2018, the last trading day of the year, propane was at a $16.25/mt discount to naphtha, the narrowest discount in just over a year, dampening enthusiasm for propane as a feedstock going into 2019.

That marked a turnaround from April 23, 2018, when propane-naphtha reached $158/mt, its widest discount in nearly three years, marking a period of prolonged maximum propane cracking for petrochemical buyers.

-- Staff, newsdesk@spglobal.com

-- Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com