Asian naphtha spreads narrow on weak demand

16 April 2008 09:40  [Source: ICIS news]

SINGAPORE (ICIS news)--Asian naphtha inter-month spreads continue to narrow due to weakness in the market, industry sources said Wednesday.

The backwardation between second half of May and second half of June open spec naphtha cargoes has been contracting since the beginning of the month from $5.00/tonne to $3.00/tonne last week. This week, the spreads were seen at $1.50/tonne even for back months like first half of June/first half of July and second half of June/second half of July.

This week, Asian naphtha prices gained a mere 0.11% versus a gain of 1.76% in the Brent crude market.

The latest deal for an open spec naphtha cargo for May delivery at flat to Japan quotes CFR (cost and freight) Korea by LG Chem brings the premium down near to discounted levels.

The last deal in early April for a similar cargo was reported done at a premium of $1.50-1.75/tonne to Japan quotes CFR Korea for May delivery.

Some of the northeast Asian end-users had been trying to increase their usage of liquefied petroleum gas (LPG) as a feedstock instead of naphtha due to high costs of the latter. Naphtha prices hit a record high of $931.00/tonne CFR Japan late Thursday.

Demand for naphtha as a feedstock weakened as relatively high costs and poor margins from downstream derivatives kept Korean cracker operators at bay.

Korean end-users had mostly covered their May requirements and some are now seeking for June cargoes. But they were likely to wait till prices soften, market sources said.

By: Desmond Chia
+65 6780 4359

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