The global naphtha market is experiencing a complex interplay between its two primary demand sectors: petrochemical feedstock and gasoline blending. Alkagesta's Naphtha Lead Trader, Ayman Youssef, noted that the balance between these demands is currently highly significant, with the company's desk active across European, Mediterranean, and Asian markets.
Petrochemical margins in Europe and Asia have been under sustained pressure for several years. This is attributed to global oversupply from substantial capacity additions, especially in China, alongside periods of weak demand and increased competition from regions using ethane rather than naphtha. China's ethylene capacity is projected to reach 66 million tonnes in 2025, with further expansion expected by 2028.
This capacity expansion has led to a structural surplus in olefins and their derivatives, reducing global utilisation rates and compressing margins in both Europe and Asia. A Deloitte analysis indicated that recent chemical plant closures began with intermediate plants in the aromatics chain, such as styrene, cumene, and phenol, before moving upstream, highlighting vulnerabilities in the middle of the value chain.
In Europe, high naphtha and energy costs have made naphtha-based crackers structurally uncompetitive compared to ethane-based units. Regulatory and carbon costs, combined with deindustrialisation pressures, have prompted the closure of several older European assets. Asia faces similar oversupply dynamics, with Japan's operating ethylene crackers expected to decrease by nearly 30% of national capacity.
Despite these challenges, recent disruptions have offered temporary relief, with benchmark naphtha refining margins in Asia surging to a four-year high of approximately $173 per tonne over Brent. However, the underlying structural downcycle persists, accelerating a shift towards flexible feedstock capabilities, including new flex-feed crackers able to switch between various feedstocks.
Alkagesta's market coverage indicates that gasoline blending has recently provided a stronger pull for naphtha. The European naphtha market insight from June 2026 showed the front-month gasoline-naphtha spread reaching a 21-month high of $269.2 per metric tonne in mid-May, providing a solid floor for physical naphtha prices. Blending value for naphtha touched $250 per tonne, making it a consistent outlet.
Arbitrage flows also reflect the tension between these demand pools. Key arbitrage routes out of Europe, including transatlantic and eastern routes, have widened significantly due to conflict-related supply disruptions and a tight gasoline environment. However, Alkagesta's data showed the East-West spread narrowing to levels insufficient to cover freight costs in late May, potentially limiting European exports.
