European propylene production has been steadily improving since the last week of April as feedstock naphtha prices continue their downward trend. Refiners in the Northwest European region have now learnt to live with the geopolitical and economic stability currently plaguing the region. Natural gas prices are on enroute to touch the USD 8/MMBtu barrier despite reduced demand from China’s lockdown-stricken economy.

Naphtha crackers have been slowly but steadily improving their run rates vis-à-vis propylene as crude oil prices have seen relative stability in the month of April compared to February and March. As more European nations have been resorting to commissioning of LNG terminals as a way of securing their energy mix and as steady supplies flow into the region from the US and the middle east, refiners have been growing in confidence in planning their throughputs.

Spot Propylene prices for the week ending 29th April have been assessed at USD 1475/MT on a CIF ARA basis. Naphtha to Propylene Spread has been steadily widening giving refiners a much-needed cushion to improve margins instead of passing on the discount to the downstream segments. The current naphtha (assessed on a CIF NWE basis) to propylene (assessed on an FD NWE basis) spread for Northwest Europe for the week ending 29th of April had improved to USD 570/MT which is close to or on par with the break-even level as per ChemAnalyst’s estimate of refinery margins for European crackers.

With crude oil prices expected to see some volatility in the coming weeks due to the current covid-19 situation in East Asia (especially in China), Russia’s continued aggressive posturing vis-à-vis the west, and natural gas prices shooting for the skies, propylene market in Europe could be up for another supply shock in the month of May. Downstream demand is however expected to be stable as per our assessment as we expect supply chain bottlenecks in the domestic market to further simplify on account of stable LNG supplies at least until the end of the quarter ending June. OPEC countries pledging to further increase production rates for the month of May should viewed from a hawkish prism for now as the target deficits for the months of February and March suggest.