Lowest Europe-Asia Naphtha Trade Volumes Recorded on Tight European Market; Next Quarter Arbitration Likely to Remain Weak

The Europe to Asia naphtha loadings, which had been falling continuously since the third quarter of 2021 despite strong demand fundamentals in the Asian countries, reached a year’s low in October quoting 1.195 million tons, after registering a decrease of 60% from the naphtha export volumes in June.

The prolonged low outflow of naphtha from Europe has been propelled by robust domestic demand amid market tightness that has been haunting the European countries since the second quarter of 2021 originating due to low domestic production in the pandemic period and reduced imports from the USA which was getting higher returns from Asia in comparison to Europe. The market tightness got further exacerbated with the rebounding strong demand by the end-user industries amid the globally rising crude oil prices. The scarcity in supplies has led to the diversion of a majority of Asia-going Naphtha cargoes to Northwest Europe where the offtakes have been high despite low margins due to costly feedstocks.

Meanwhile, the robust demand for naphtha in the Asian countries backed by emerging new naphtha-cracking industries and favourable downstream margins especially with the onset of the festive season in many regions is being fulfilled through domestic production combined with imports from the USA.

Naphtha is a highly flammable aliphatic hydrocarbon-rich fluid derived from crude oil distillation. It is extensively used as a feedstock for producing gasoline and many other important petrochemicals through the cracking process.

As per ChemAnalyst, the fast-growing economies in Asia pose a huge market for the consumption of naphtha, where the demand is expected to stay firm in the next quarter. On the other hand, Europe is expected to witness continued supply pressure until the volatility in crude oil (feedstock) prices subside and the USA imports get stabilized. This shall lead to muted Europe-Asia naphtha arbitrage in the upcoming quarter which is anticipated to get further fuelled by the ongoing global container crunch limiting timely deliveries and causing a hike in freight charges of traded cargoes. Given the situation, the prices of naphtha in Europe and some East Asian countries have already taken an upward trend and are expected to stay high in the next quarter as well.