FocusNaphtha from Europe to put pressure on Asian market in May

06 April 2009 13:40  [Source: ICIS news]

SINGAPORE (ICIS news)--An influx of up to 1m tonnes of naphtha supplies into Asia from northwest Europe will put pressure on the Asian market in May, according to industry sources on Monday.

Last month, traders said they expected the early-May arrival in northeast Asia to be around 450,000 tonnes. Last week, the figure was pegged at 720,000 tonnes for the whole month of May.

But this week the numbers were revised to as much as 1m tonnes, with some sources saying the number could yet go higher.

"We are still estimating the figure at 800,000-1,000,000 tonnes as some of these fixtures may not be successful. It will take some time to finalise the shipments in May," a market source said.

According to another source, this year’s volume is the highest ever registered.

In 2008, the highest level of imports from northwest Europe was 750,000-800,000 tonnes per month during February-March, trading sources said.

The wide open west-east window arbitrage had encouraged traders to move cargoes from northwest Europe to northeast Asia.

The west-east difference was seen at around $40-45/tonne (€29.60-33.30/tonne) late last month. A margin of $15/tonne or more could be reaped after subtracting freight costs of $25/tonne when the cargo is fixed during late March.

Naphtha cargoes are normally transported using vessels of sizes 55,000-75,000 tonnes to minimise freight costs.

Sources said such margins had been very encouraging for traders, who made profits of less than $10/tonne last year.

Demand from Taiwanese and Korean cracker operators has been robust since the end of March, as they hiked the run rate at their naphtha crackers up to 100%.

Even Japanese operators said they are planning to ramp up their cracker rates in April to 80-90% from current levels of 70-75%.

Demand for naphtha in Asia had been firming since the second half of last month. Estimates of spot purchases for May arrival cargoes by northeast Asian cracker operators were as follows: Taiwan with 430,000 tonnes; South Korea with 250,000 tonnes; and Japan with 75,000 tonnes.

Sources said that more naphtha purchases for spot cargoes will be seen from these countries if the demand for downstream petrochemicals from Chinese end-users remains healthy.

Traders, however, said they were not sure whether this strong demand could be sustained.

Another reason behind cracker operators' purchases of spot cargoes was that many of them had either stopped their scheduled liftings from Middle East suppliers, or they had reduced volumes to a minimum for this year.

"I seriously doubt northeast Asia can absorb all these volumes, in addition to supplies from Latin America, India, the Middle East and Pakistan," a veteran trader said.

Sources said that India is likely to increase its naphtha exports in May and June, as its domestic power and fertilizer plants are relying on liquefied natural gas (LNG), which is presently priced at levels almost half of naphtha.

The country exported around 700,000 tonnes of naphtha in March and will export a total of 450,000-500,000 tonnes in April, according to sources. The figure is likely to increase to March volumes, they said.

Asian naphtha prices opened firmer on Monday, with second-half May price indications pegged at $477.50-480.50/tonne CFR (cost and freight) Japan.

($1 = 0.74)

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By: Desmond Chia
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