Asia’s naphtha cracking margins under pressure

25 August 2006 08:33  [Source: ICIS news]

SINGAPORE (ICIS news)--Asia’s naphtha cracking margins have come under downward pressure this month from ample Indian supplies and a bearish near-term outlook for the regional market, traders said on Friday.

Asia’s naphtha premium to Brent crude - the naphtha/Brent crack spread - has slid 12% to $79/tonne this week. The spread was widest at $90/tonne in the week ended 18 August, according to global chemical market intelligence service ICIS pricing.

The weakness in the prompt Asian naphtha market has shrunk the values of open spec naphtha for the second half October contract earlier this week by nearly 5% this month, to $621.50/tonne CFR Japan. Prices rebounded Friday to $628.50/tonne, helped by stronger crude values and some intermittent buying in the spot market.

However, the availability of naphtha will likely keep a tight lid on the Asian naphtha spread against Brent for at least the next few weeks. This will increase downward pressure on the naphtha-Brent crack spread, some traders said.

“Cracking margins are looking quite vulnerable. If regional fundamentals don’t recover anytime soon, margins could narrow again,” a naphtha trader based in Seoul said. 

Indian refiners have been running flat out this year to take advantage of strong refining margins, raising throughput for naphtha, in turn depressing the physical market as demand has failed to keep pace.

The increased flow from India comes as Asian petrochemical producers aren’t buying over and above their requirements due to maintenance work at some cracking units.

Indian naphtha exports have been rising as domestic surpluses were being offered to the regional spot market because power utilities and fertilizer plants in India have been switching to cheaper natural gas as feedstock.

Following a flurry of Indian spot sell tenders issued this month, the naphtha/Brent crack spread may have little room for upside, traders said.

“Unless the surpluses can quickly be mopped up, I am not so optimistic cracking margins will recover strongly,” said a light distillates trading manager in Singapore.
By: Nurul Darni
65 6789 4359

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