London (Platts)--7Feb2013/708 am EST/1208 GMT

A recent rally in the naphtha market has prompted European olefin-polyolefin producers to shift their focus to margin retention, setting a mood of caution across the sector, sources said this week.

A source at one polyolefin producer said it had forgone an increase in rates in a bid to maintain margins.

"We are currently running at 83-84%," he said.

Naphtha was assessed by Platts at $992/mt CIF NWE Wednesday, the highest since mid-September. In euro terms it was assessed at Eur733/mt CIF Northwest Europe Wednesday, the highest since mid-November.

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The naphtha market is very tight in the Mediterranean and Northwest Europe at the moment on the back of soaring gasoline prices and an open arbitrage window to Asia, where refinery maintenance is taking place into the spring, said traders.

"There is not only demand for gasoline blenders in Europe, but also in the US which were long in naphtha and are now balanced," added one market source.

DOWNSTREAM MARKETS LACK DIRECTION

The ethylene contract price for February settled at a rollover at Eur1,275/mt FD NWE, its third consecutive sideways movement reflecting a directionless market, sources said.

European low density polyethylene converters rejected hikes proposed by LDPE producers in their February contract market, citing bearish near-term expectations of end-user demand.

European PE producers said they continued to target small increase for Feb CPs of up to Eur50/mt.

"Orders are ticking in. We, however, realize that another round of increase after January won't be that easy," a producer said, adding that he was targeting an increase of Eur10-20/mt to Eur1,550-1,550/mt FD NWE.

A couple of converters said they were unable to meet downstream tonnage targets for January, directing them to seek a rollover for February.

"We are working on a weekly basis with inventory, keeping stock levels low," one converter said.

Contract price for LDPE was assessed unchanged Wednesday on January's end at Eur1,510-1,515/mt FD NWE.

PE, a polyolefin, is derivative of ethylene. Ethylene, an olefin, is produced from naphtha.

--Nandita Lal, nandita_lal@platts.com
--Virginie Malicier, virginie_malicier@platts.com
--Edited by James Leech, james_leech@platts.com

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