22 January 2010 10:03 [Source: ICIS news]
By Felicia Loo
SINGAPORE (ICIS news)--Asia’s naphtha crack spread is expected to firm up after rebounding from an almost three-week low level on Friday, despite peak period of cracker maintenance in the region and crude futures hobbling at just $76/bbl (€54/bbl), traders said.
Benchmark naphtha crack spread versus Brent futures went down to $154.75/tonne, the lowest since the $150.08/tonne registered on 4 January this year, but around $51/tonne higher than a year ago, according to global chemical market intelligence service ICIS pricing.
At the close of Asian trade, the crack spread rebounded to $164/tonne on bullish Chinese demand that helped rally ethylene prices.
The intermonth naphtha spread was pegged at $12/tonne in backwardation due to signs of a firm naphtha market, twice the levels in mid-November.
"The total (naphtha) demand should decrease for March and April because of maintenance. The market already factored in for March," a trader in Tokyo said.
For March alone, a total of 2.57m tonnes/year of cracker capacity will go off line in Japan and South Korea.
However, traders said the regional naphtha market could be supported slightly by healthy Chinese demand and limited arbitrage flows from Europe, as well as lower exports from India.
Crackers which were not under maintenance would continue to operate at high rates to capture the robust ethylene margins, they added.
"The margins are still very good," a trader in Seoul said.
Ethylene margins in northeast Asia were at $447/tonne for the week ended 15 January and were around $513/tonne in southeast Asia over the same period. The figures were the highest since July 2008, according to ICIS pricing margin analysis.
"The prompt market is still supportive because China is bullish on petrochemicals," the Seoul-based trader said.
On the supply front, traders said lower shipments from Europe and India would provide some support to prices.
India would curtail its naphtha exports for March loading to less than 700,000 tonnes due to expectations of higher domestic consumption for power generation, compared with nearly 800,000 tonnes booked for February exports and around 950,000 tonnes shipped out in January, traders added.
Some 1.2-1.3m tonnes of European naphtha were estimated to land in Asia during January and February, but the volumes for March arrivals were short in the face of soaring European prices that made arbitrage economics unworkable, traders said.
Northeast Asian ethylene spot prices rose to $1,350-1,400/tonne CFR (cost and freight) NE Asia on Friday due to strong Chinese demand after two cargoes totalling 7,000 tonnes were reported to be sold at $1,400/tonne CFR China for mid to second half of February arrival, ICIS pricing data showed.
Analysts said prices of petrochemical products in Asia could feel some pressure as China – a major importer in the region – accelerated its credit tightening measures.
However, demand was expected to remain strong in line with the global economic recovery, which would prevent prices from falling heavily, they added.
Chinese naphtha demand was relentless for now, given a sizzling economy that grew at 10.7% in the fourth quarter last year. The world's second-biggest energy user imported 334,654 tonnes of naphtha in December 2009, up 47.82% from a year ago, based on official customs data as reported by news agency Reuters.
"The positive growth in Chinese exports and strong housing market in China will translate to a big off taker of petrochemicals," said Yan Kefeng, a consultant at Cambridge Energy Research Associates (CERA).
($1 = €0.71)
Additional reporting by Peh Soo Hwee
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