The prompt European naphtha market nudged back into backwardation on Tuesday despite reports of steam cracker shutdowns in Asia and a finely balanced European market, sources said.
The European naphtha market is currently hanging in the balance with open specification cargoes fetching small premiums to swaps despite crack spreads languishing at around minus $7/barrel, in a structurally long market.
"The prompt availabilities are rather scarce and gasoline is pulling, but...the market looks rather balanced," said one source.
Following the close Monday when Platts assessed the inter-month spread between July and August in a contango of $1.50/mt, the contract showed a small backwardation of up to $2/mt on Tuesday morning.
Platts last assessed a backwardated market between the balance and front month naphtha swap on June 1.
This move into backwardation, which typically represents a market short of supply in the prompt end, was confusing some traders given a lack of exports east resulting from a number of downstream problems in Asia, sources said.
Sources said Red Sea cargoes were possibly on the way to NWE, given cracker outages in Asia. South Korea's LG Chem Tuesday is understood to be shutting its 900,000 mt/year steam cracker in Daesan.
A company source told Platts earlier that the steam cracker was shut unexpectedly on Tuesday due to a technical issue involving a recent turnaround, and would likely remain shut for "a few days."
"Europe hasn't been sending naphtha to Asia for two months, but the closure of LG Chem is likely to move red sea barrels to NWE and volumes will need to find homes," said one source.
Previously, Taiwan's Formosa Petrochemical was forced to shut its 800,000 mt/year No. 1 naphtha-fed steam cracker at Mailiao in May following an LPG pipeline fire. The cracker is yet to restart.
