Northwest European large cargo propane prices have weakened substantially in the past week, as petrochemical resales and producer offers dent sentiment just as seasonal heating demand ends.
With supply building, Argus-assessed large cargo propane cif Amsterdam-Rotterdam-Antwerp (ARA) value has fallen by $34.50/t outright since 24 April. This has pushed propane down by $43.50/t compared with competing petrochemical feedstock naphtha, and trimmed its premium over the latter by almost half from $100.25/t to $56.75/t.
Propane prices had been relatively strong compared with the wider oil product market since the Covid-19 outbreak, supported by a rush of residential purchases ahead of lockdown measures, export demand and, initially, enduring buying from the petrochemical sector. The wider oil product market, meanwhile, saw demand curbed sharply by transport restrictions, and propane's ratio to naphtha was violently altered as the usual a steep propane discount disappeared.
The front-month northwest European propane-naphtha spread breached $100/t for the first time since 2012 in mid-April after having been in negative territory for all but a handful of dates since exports began to soar from the US in 2013. Such a steep propane premium incentivises steam cracker operators with the flexibility in their cracker configurations and in their downstream commitments to minimise propane intake.
But unwinding and altering positions takes time, so only now is the change becoming apparent in outright and relative values.
Propane's slump will endure for as long as the usual buyers are either absent or even offering cargoes for sale.
One issue facing cracker operators considering switching near completely back to naphtha from propane is how they manage the additional co-products this entails. Aromatics and butadiene, both well-supplied in northwest Europe, particularly are produced in greater abundance when cracking naphtha. This means propane will not completely drop off from feedstock slates, although current economics incentivise a steep reduction, and this could endure — the forward market indicates an approximate $35/t propane premium over naphtha for the remainder of the year.
Any lengthy period of lower propane buying interest from the petrochemical sector could push prompt pricing to such a discount to later dated swaps as to motivate purchases for storage. These levels are far off, but the trajectory in the market structure between month one and month two paper is plain — Argus assessed May propane cif ARA swaps at a $14/t premium to June cif ARA swaps as recently at 17 April, but then they closed yesterday in a mild -$1/t contango.
One signal that propane is out of fashion in northwest Europe is seen the sales of two 20,500t propane large cargoes from US chemicals giant Dow, typically northwest Europe's largest petrochemical buyer. Offers for a 20,500t cargo followed from another key outlet, Germany's BASF. Norway's state-controlled Equinor has since unsuccessfully marketed a 20,500t cargo, and Shell has looked to offload 12,000t.
Argus estimates that Dow's three train 525,000 t/yr, 600,000 t/yr and 675,000 t/yr ethylene cracker in Terneuzen, Netherlands, has a 40pc maximum, 0pc minimum propane feedstock flexibility. BASF owns a 1.08mn t/yr ethylene cracker in Antwerp that will be able to take a 50pc maximum, 0pc minimum propane feedstock when a recent reconfiguration including the addition of a new propane storage tank completes in the second quarter.
