FocusRising supply overwhelms Asia naphtha

20 September 2007 05:00  [Source: ICIS news]

By Nurul Darni

SINGAPORE (ICIS news)--Despite this week’s rally in open spec prices, Asia’s naphtha market is weighed down by a supply overhang due to ample exports from India and the Middle East, traders said on Thursday.

Key open spec naphtha prices in Asia climbed to as high as $726/tonne CFR (cost and freight) on Wednesday after crude futures surged to over $82/bbl for the first time this week.

But bearish sentiment was reflected in spot trades that were concluded at sharp discounts recently, traders said.

"Compared with crude, naphtha is fundamentally much weaker. There are plentiful cargoes floating from India and the Middle East and buyers are not in such a hurry," a Tokyo-based naphtha end-user said.

Increased export cargoes from India – with volume estimated to be more than 900,000 tonnes for October – caused the market to flip into contango from August, traders said.

Mangalore Refineries, Kochi Refineries, Indian Oil Corp (IOC) and Essar Oil were among those exporting more naphtha by tender in recent weeks as industrial consumers in India switched to cheaper natural gas over naphtha.

More recently, Saudi Arabian Oil Co (Aramco) made an unusual term naphtha offer for October loading until March 2008, prompting talk that start-up of a new cracker in Al Jubail may be delayed to the first quarter of next year.

So far, buyers in Asia have reacted coolly towards Aramco’s naphtha offers and sales had not been concluded yet, traders familiar with the situation said.

Traders also said the supply glut was likely to stay at least until November.

Reflecting the oversupply, South Korea's Lotte Daesan this week bought 25,000 tonnes of open-spec naphtha at a steeper discount than its previous purchase. The company bought the cargo at a discount of $6/tonne to the Japan spot quotes, CFR basis.

By comparison, it last bought a similar volume of first-half November arrival cargo at a discount of $5/tonne to the Japan spot quotes.

By: Nurul Darni
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