Propane-Naphtha Spread Tightens to Eight-Month Low

Petrochemical Feedstock Shift

The price gap between propane and naphtha has narrowed significantly, reaching its tightest level in eight months. This spread is a critical metric for the petrochemical industry, which uses both commodities as feedstocks for 'crackers' to produce plastics. Historically, propane has been the cheaper alternative, but recent price hikes in propane coupled with falling naphtha prices have eroded this advantage.

Heating Demand vs. Industrial Use

Propane prices have been supported by the onset of colder weather, which drives demand for residential heating and crop drying. This seasonal heating demand is competing with the industrial sector for supply, pushing prices higher. In contrast, naphtha prices have drifted lower due to weak demand from gasoline blenders and ample supply from refineries returning from maintenance.

Market Implications

The narrowing spread means flexible petrochemical crackers may switch back to using naphtha instead of propane. This fuel-switching could cap the upside for propane prices in the short term, as industrial demand wanes. However, if the winter proves to be exceptionally harsh, the residential heating demand will likely override the industrial loss, keeping propane markets tight and prices elevated.