European refiners will export little or no naphtha to Asia this month amid demand from German petrochemicals producers that has driven prices to the highest closing level in seven months.
Asian-bound shipments of the oil product, which can be used to make motor fuel or as a feedstock for plastics, may drop to zero, from about 160,000 metric tons in September, according to a Bloomberg survey of six traders. Exports peaked this year at about 500,000 tons in May.
Germany’s economy will expand 3.4 percent this year, almost three times the pace projected in May, the Brussels-based European Commission said Sept. 13. Faster growth is stoking demand from petrochemical companies that turn naphtha into the ethylene and propylene used in everything from plastic bottles to car bumpers. Bayerische Motoren Werke AG and Daimler AG’s Mercedes-Benz, the world’s two biggest luxury-carmakers, are targeting a 10 percent increase in auto sales this year.
“Demand from consumer goods and automotive industries is good,” said Stephan Kippe, an analyst at Commerzbank AG in Frankfurt. “For the most part, European chemical companies haven’t seen a significant summer lull this year.”
European naphtha closed at $759 a ton today, the highest price since March 4, according to data compiled by Bloomberg. Its discount to North Sea Brent crude, a gauge of European refining margin, was minus $1.70 a barrel, compared with minus $6.10 on July 13 and an average of minus $2.25 in the past year, according to data from PVM Oil Associates Ltd.
Naphtha consumption is also increasing before the northern hemisphere’s winter as petrochemicals makers such as BASF SE, the world’s largest chemical company, stop using liquefied petroleum gas as an alternative feedstock because of the increased need for LPG as heating fuel.
“In the last month petrochemicals producers in Europe have been switching to naphtha because LPG prices have been relatively high,” said Jonathan Leitch, London-based senior analyst at Wood Mackenzie Consultants Ltd.
LPG has traded at a premium to naphtha in Europe since Sept. 2, according to Bloomberg data. Propane, the main liquefied petroleum gas, cost $2 a ton more today, compared with a discount of $62 on June 15.
Demand for European naphtha from Brazilian companies such as state-owned Petroleo Brasileiro SA and Braskem SA, Latin America’s largest petrochemicals producer, is also driving prices higher amid a shortage of ethanol caused by a drought that’s harmed the country’s sugar crop, according to JBC Energy GmbH, a Vienna-based industry group. Ethanol is made from sugar.
Brazil Ethanol Output
“Brazil is experiencing lower ethanol production levels as insufficient rainfall has reduced feedstock yields,” JBC Energy analysts wrote in a report on Oct. 1.
Naphtha for delivery to Japan, the Asian benchmark price, gained for the ninth day amid the reduced shipments from Europe. It climbed to $750.13 a ton, the longest rally in almost seven years, according to Bloomberg data. The winning streak matched a nine-day rally through Dec. 15, 2003.
Prices still aren’t high enough to attract traders seeking to profit from regional differences. Cargoes of naphtha for October delivery were $13 a ton more expensive in Asia than in Europe on Sept. 29, according to two Asian-based traders who declined to be identified because they aren’t authorized to comment publicly. November shipments were $14.50 higher, they said. Arbitrage shipments only become profitable at $18 a ton, according to the traders.
This week OAO Lukoil, Russia’s second-largest oil producer, gave up a provisional booking of the Mari Ugland to load a cargo from Banias in Syria, according to a fixture report from shipbrokers Millennium Chartering Ltd.
Demand in Asia is likely to fall next month as chemical plants shut for maintenance. Formosa Petrochemical Corp. plans to halt its No. 2 ethylene plant on Oct. 5 for as many as 45 days. Taiwan’s state-owned CPC Corp. will close its No. 4 naphtha cracker on Nov. 3 for as many as 55 days. Titan Chemicals Corp. will restart its No. 2 cracker at Pasir Gudang in southern Malaysia in late October after maintenance, ICIS, a chemical news and pricing service, reported on Oct. 1.