The European naphtha market is poised for major changes in fundamentals in 2024, which could provide firm export demand while facing domestic challenges.
Demand for naphtha as a petrochemical feedstock is likely to rise in China as new petrochemical crackers start up in the coming year. Expanding petrochemicals capacity and so-called ‘revenge mobility' — China's post-Covid lockdown return to the roads — have eclipsed construction as the drivers of Chinese oil demand growth. Chinese apparent demand for naphtha and LPG have risen by 900,000 b/d year on year in 2023, according to Argus data, and will probably drive Chinese oil demand again in 2024.
European naphtha values began to find support from export demand in the second half of 2023 as logistical difficulties hampered naphtha shipments into the Asia-Pacific region from the US Gulf coast and the Middle East. Logistical bottlenecks at the Panama Canal have driven buyers in the Asia-Pacific petrochemical industry to look for alternatives to US feedstock supply. Heavy refinery maintenance in the Middle East has trimmed the supply of naphtha available to Asia. A fall in Russian naphtha exports because of sanctions has provided a further push for Asian buyers to look to the Mediterranean, supporting naphtha refining margins in the wider European region. This trend is likely to continue into the beginning of 2024 with further growth in Asian naphtha demand.
On the other hand, European naphtha cargoes may lose some alternative demand outlets in 2024, meaning Chinese buyers may face less competition for them. Gasoline blending demand was a relatively dependable outlet for European naphtha in 2023, while macroeconomic headwinds kept petrochemicals demand down. But waning exports to west Africa could cut into European blending demand. Belgium is poised to join the Netherlands in implementing stricter rules for gasoline exports, which could limit ARA gasoline exports to west Africa. Northwest European gasoline exports to the region totalled 11.45mn t in 2023 up to 12 December, 3.84mn t lower than in the same period in 2022, according to Vortexa data. Gasoline import demand may decline further in west Africa as the long-awaited 650,000 b/d Dangote refinery in Nigeria could begin processing crude consistently in 2024, with a knock-on effect on northwest European gasoline blending demand.
Petrochemical demand in Europe is unlikely to show any considerable growth in 2024. Market participants note that one petrochemical cracker in northwest Europe is likely to be shut down. Crackers were consistently running at utilisation rates of around 70pc in 2023, capping local demand for naphtha as feedstock. European demand for finished petrochemical products has been poor as some major economies have contracted in 2023. Polymer demand from industrial sectors like construction is expected to fall further in 2024, as market participants foresee a lagged impact from European and UK central bank interest rate hikes over the past year.
