European petrochemical spot cracker margins fell to 16-month lows this week due to rising outright values of naphtha, driven by a stronger overall crude oil complex.
Margins narrowed $31.56 to $377.54/mt Thursday, reaching their lowest point since December 23, 2016, after falling from yearly highs of $871.93 February 15.
In comparison, the spot price of physical Dated Brent strengthened from $63.02/mt February 15 to $80.29/mt assessed Thursday.
As a consequence of stronger crude, the price of naphtha has surged, with CIF Northwest Europe naphtha physical cargoes assessed at $694/mt Thursday, up $17.25/mt on the day, its highest point since October 29, 2014.
Higher feedstock prices have a significant impact on margins as it means co-product yields will come at a higher cost.
However, despite weak petrochemical margins, steam crackers in Europe are still running at full capacity, according to sources.
"So far downstream you don't see any slowdown," said a source. "And while the demand is there, even if the margins have fallen, crackers will be run as hard as they can."
The European spot price of polymer grade propylene was assessed up Eur14/mt at Eur1,022.50/mt Thursday, while spot ethylene prices were assessed up Eur2.50/mt at Eur982.50.
Sentiment remains mixed on whether the dip in margins is a short- or long-term trend, with some sources pointing to increased exports of polyethylene from the US as a sign that margins will fall further.
"I agree that we don't see slowdowns yet but it's a different margin environment to the last few years," said a source. "I'm hearing about PE pellets stacking up and this is before the bulk of US Gulf Coast capacity comes online in 2018 -- the crackers I speak to are worried about margins." - ICIS -