European naphtha demand from the petrochemical sector is unlikely to rebound sharply despite improved Rhine logistics, as an oversupplied ethylene market continues to weigh on steam cracker operating rates.
European cracker utilisation fell to 65-70pc in August, according to petrochemical market participants, as weak demand across the olefins chain reduced incentives to raise rates. August is typically slower because plastics converters shut units seasonally, but participants described this year's demand as particularly weak.
Lower cracker runs have done little to tighten ethylene balances. The European market remains long despite logistical disruptions along the Rhine that limited feedstock deliveries to some inland crackers, as crackers were also unable to deliver finished products out, participants said.
Coastal crackers, which have more LPG flexibility, were less affected compared with inland plants along the Rhine that run higher naphtha configurations. LPG margins are more attractive, while ethane-fed producers still benefit from lower feedstock costs, participants said.
Ethylene demand strengthened earlier this year on expectations that disruption to Middle East olefin exports could tighten global supply, but those concerns have faded. Trade flows adjusted and supply remained available, participants said.
Some seasonal improvement is expected in September as converters return from summer shutdowns, but there is little sign of a broader rebound in consumption. Quarter-end inventory targets could also discourage restocking later this month, participants said.
A rise in Rhine water levels over the past two weeks has eased constraints on naphtha barge movements to inland European markets. But the respite may prove short-lived, with water levels forecast to fall again in the coming days. Water levels at the Kaub chokepoint on the Rhine breached 70cm over the weekend, but are set to fall back to 40cm by the end of the week.
Naphtha cracking margins have stabilised from early-summer lows of around a $19-12/t discount to North Sea dated to about a $4/t discount, but remain weaker than for alternative feedstocks.
Support for naphtha has instead come from the gasoline sector. Strong blending economics drew down blending-grade naphtha inventories that built during the Rhine disruption, providing an outlet for surplus barrels, participants said.
