Unseasonably tight Asia pro-nap swaps unsustainable, weaker Europe to turn more Med cargoes East in July; US-ARA arb reopens on paper in Q4

16 May 2024 Time to read:  minutes



Global summer naphtha cracks and time spreads are attempting a recovery after a determined sell-off over nearly a week. Even so, despite these corrections, significant upside for global naphtha markets is not likely, particularly so in Asia where steam cracker run rates continue to flag, either through extended turnarounds as we discussed last week or unplanned outages, such as the SCG force majeure.


Global naphtha time spreads correcting after last week’s harsh sell off, but should remain under pressure in the near term. (Sparta Live Curves)

Asia propane-naphtha swaps have tightened by around $10/mt for summer, largely a function of MOPJ’s recent collapse, but that has been recently compounded by AFEI propane’s rise during the same time frame.

Although this has put the spread within striking distance of the critical $50/t switching level, which would incentivise a move back to naphtha for flexible steam crackers, this tighter spread will not likely prove sustainable.

The move upward in June propane coincides with the return to service of several Chinese PDH units.

That said, our calculations indicate Chinese PDH margins are unprofitable unless operators are running down propane stocks or taking receipt of heavily discounted Iranian material, meaning PDH operating rates should remain subdued.


Asian propane-naphtha swaps unseasonably tight but should revert to more average levels, meaning naphtha will have to continue to fight for its place in the steam cracker feedstock pool. (Sparta Historical Forwards)

Further near-term weakness for the Asian complex is likely given naphtha steam cracker margins look underwater in June, only returning to just above the $150-250/t breakeven margin in July, our calculations show, but the July time frame also coincides with the return of several northeast Asian crackers from maintenance, which could put further downward pressure on downstream petrochemical prices.

Ultimately, we see a correction towards more historical norms for Asian pro-naps are on the cards.

In Europe, despite an attempted recovery in NWE flat price, arbs remain uneconomic into Rotterdam with shrinking time spreads now threatening July deliveries of open spec material from the Med.

We have been cautious regarding earlier support from regional gasoline blending given the prior uptick in EBOB, but with competition from the Middle East on the rise, NWE naphtha has been taken down by waning gasoline.

With further near-term bearishness expected from gasoline on both sides of the Atlantic and our ongoing cautiousness regarding European petchems demand, there is further risk to the downside for NWE naphtha.


Med material now uneconomic into Rotterdam in July, which could turn those barrels eastward. (Sparta Global ARBS – Pricing Centre)

That said, a wider E/W could allow for incremental cargoes to head to Asia, particularly out of Algeria where arbs are peeking open and could join material out of Greece, where the Cape of Good Hope route to Asia remains viable.

We also note that US-ARA arb has reopened at the back of the curve with freight doing the bulk of the heavy lifting.

Meanwhile, little has changed in US naphtha markets, where prices continue to defy soft fundamentals in a market growing more illiquid by the day.

New York Harbor remains unconcerned about resupply until August—but just barely so—per the Sparta platform as PADD 1 gasoline stocks remain above year-ago levels.


NYH still unconcerned about naphtha resupply given ample PADD 1 gasoline inventories, mirroring the situation in gasoline arbs. (Sparta Global ARBS – Pricing Centre)

 Samantha Hartke, a veteran in commodity management, boasts substantial expertise in energy analysis and product management. In her role at Energy Aspects as Head of NGLs, she analysed global natural gas liquids markets. Previously, at PetroChem Wire, Samantha provided high-quality analysis of North American NGLs and olefins. Her expertise also extends to leading the commercial and operational aspects of IHS Chemical’s daily business information service.

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