SINGAPORE/LONDON (Reuters) – Profit margins for making petroleum feedstock naphtha have hit their weakest in over a decade in Asia and a seven-year low in Europe as the global economy weakens and large-scale processing unit outages hurt demand.

The benchmark naphtha margin last week closed at a $15.38 a tonne discount to Brent crude, the lowest since December 2008, when the financial crisis roiled the global economy.

The 124% slide in profit margins from March’s 2019 peak means naphtha – used chiefly as a dilutant in crude oil refining, as well as in products like varnishes and cleaning products – has the worst-performing margin of all oil products.

In Europe, northwest European naphtha cracks hit their lowest since June 2012 on Thursday at around -$15.41 a barrel.

Benchmark European gasoline margins sank below $5 a barrel on Thursday to their lowest since March this year. The fall in gasoline weighed further on naphtha, which is used as a blending component in the motor fuel.

South Korea’s LG Chem does not expect to restart its 1.3 million tonne per year (tpy) naphtha cracker until next week, after closing it last week following technical trouble.

Scheduled maintenance is also ongoing at a raft of processing units, or crackers, in North Asia, while Hanwha Total’s Daesan cracker in South Korea is also shuttered following a turnaround that started in late March.

A planned turnaround at Royal Dutch Shell’s Moerdijk petrochemical plant in the Netherlands was also contributing to lower naphtha demand in Europe.

One naphtha trader, asked for the reason behind the weakness in naphtha cracks globally, said: “Demand, demand, demand – and peak cracker turnarounds are not helping”.

He said the sell-off in naphtha prices had been brewing for a couple of months.

“The naphtha market is very weak at the moment,” said Matthew Chew, principal oil analyst at IHS Markit.

Chew said a plunge in prices for liquefied petroleum gas (LPG), a competing feedstock fuel, was also putting downward pressure on naphtha.

“The recent weakness in LPG prices has heavily influenced the preference for naphtha in the last five weeks,” Hui Heng Tan of brokerage Marex Spectron said.

Not all oil companies active in the downstream sector are set to suffer. Refiners of oil products who also have petrochemical plants have a natural hedge in times of low naphtha prices.

OMV’s Chief Executive Rainer Seele told Reuters recently that he was ebullient about a market awash with cheap naphtha because it would benefit OMV’s push into petrochemical markets, providing a natural hedge in its operations.

A weakening global economy, which has started to dent oil and fuel demand growth, is weighing on industry profits as well.

“Over the past week or so our economists have revised down their GDP growth outlook for the U.S., China, India and Brazil,” Barclays bank said on Monday in a note about the economy and its impact on oil demand.

Those countries account for more than three-quarters of the British bank’s oil demand growth assumptions for this year, it said.

“The revisions imply a 300,000 barrel per day reduction in our current global oil demand outlook of 1.3 million barrels per day” for this year, Barclays said.

Falling margins in the petrochemical industry were also weighing on naphtha margins.

“The ethylene-naphtha spread is now around $350 a tonne, about half of what it was some three months ago,” said Sri Paravaikkarasu, director for Asia oil at energy consultancy FGE.

Ethylene is a building block for plastic and is the product most commonly made at most petrochemical facilities.

Paravaikkarasu said naphtha cracks should receive some relief from the full return of crackers from maintenance later in the northern hemisphere summer.

He added however: “The recovery path will be slow.”

Graphic on slumping naphtha profits: tmsnrt.rs/2R0AfQi

Graphic on northwest European margins: tmsnrt.rs/2WzyOhT