Europe-Asia Naphtha Arbitrage Continues Slimming Down Amid Tight Supply in Europe

The outflow of naphtha from Europe to Asia has tumbled continuously for the third month with September loadings reaching 11-months low. The shipment loadings of 1.215 metric tonnes naphtha for the September month was lower than the August loadings of 1.525 metric tonnes, which was again down from the July loadings that stood at 1.64 million tonnes. On the contrary, the June loadings of 1.8 million tonnes had been a two-year high.

The month-on-month reduction of 20% in the loadings have primarily been due to the tight naphtha supplies in the European region owing to very low domestic production and limited influx from the USA amidst the firm demand from the region’s petrochemical downstream. Additionally, the USA, which is the major source of naphtha feedstock provider to Europe, has increased its arbitrage with Asia on the prospects of better netbacks.

Meanwhile, the demand for naphtha in Asia has grown weak since August owing to the scheduled turnaround of the Asian petrochemical companies. For instance, South Korean major, LG Chem shut its Daesan steam cracker unit with a capacity of 1200 KTPA ethylene and 450 KTPA propylene for a 20-days maintenance program in the August. 

Naphtha is a flammable liquid mixture of hydrocarbons that has vast usage as a raw material for gasoline and other petrochemical products produced from its cracking. It also holds wide usage as a solvent in gasoline blending, paints, dry-cleanings, rubber industry etc.

As per ChemAnalyst, Europe is witnessing a stubborn demand for naphtha owing to the sudden surge in liquified petroleum gas demand backed by the record-high prices of natural gas, an alternative refinery fuel. The declining inflow of arbitrage from the USA has left Europe with no alternative but to fulfil the domestic demand with its constrained inventories. The demand for naphtha in Asia is expected to stay subdued in October as well with more turnarounds in the pipeline. However, with the USA reviving from the hurricane-ridden devastations, the naphtha supplies to Europe will soon stabilize which in turn is expected to improve the Europe-Asia arbitrage after a few weeks.