FocusAsia’s naphtha market poised to slow on weak aromatics

09 February 2010 05:44  [Source: ICIS news]

By Felicia Loo

SINGAPORE (ICIS news)--Asia’s naphtha market is expected to remain slow in the weeks ahead, tracking a weakening downstream aromatics market, but a dearth of deep-sea supply from Europe will cap losses, traders said on Tuesday.

The benchmark naphtha crack spread narrowed to a six-day low of $151.10/tonne (€110.30/tonne) against Brent crude futures at the close of Monday, and slid further to $150.05/tonne on midday Tuesday trade, according to ICIS pricing.

However, the spread between second-half March and first-half April widened to $6.00/tonne from $5.25/tonne on the previous trading day.

“Direction wise, the naphtha market is confusing. Some traders are bidding up prices because of a lack of arbitrage material. C2 and C3 prices are coming down, so are aromatic prices,” said a trader in South Korea.

As a sign of weakening prices in the days ahead of the Lunar New Year that starts on 14 February, ethylene prices eased to $1,350-1,380/tonne CFR NE Asia from $1,370-1,400/tonne CFR NE Asia a week ago.

“Naphtha follows the petrochemicals sector. If petrochemicals continue to fall, then naphtha should also weaken or else it will just be range-bound,” a Singapore trader said.

One trader added: “The current strength cannot be sustained. The petrochemical turnarounds are a more bearish factor.”

For instance, the mammoth 800,000 tonne/year Huizhou cracker will be shut in early March for two months of maintenance and expansion to 1m tonne/year, ICIS news reported.

BASF-YPC Co would shut its 600,000 tonne/year steam cracker in Nanjing, Jiangsu province in April and May for maintenance and to raise its capacity by 23% to 740,000 tonnes/year during the shutdown period.

Overall in northeast Asia, some 223,000 tonnes of cracker capacities were expected to be taken offline during March and April, according to ICIS pricing.

On the other hand, some traders insisted on higher premiums for second-half March naphtha cargoes due to a closed arbitrage window, between Europe and Asia. “They are insisting that the arbitrage window is shut, so there is no supply from Europe for now,” said a trader.

Reflecting weaker sentiment, spot paraxylene (PX) prices dropped almost 12% in the past month and had breached the psychologically important $1,000/tonne mark on Tuesday, as most end-user requirements for the month of March had already been covered.

Paraxylene parcels for H2 February and March delivery were assessed at three month lows of $1,000-1,010/tonne CFR (cost and freight) Taiwan and/or China Main Port (CMP, according to ICIS pricing.

A pre-Chinese New Year holiday purchasing lull also fuelled panic among PX traders who grew increasingly desperate to liquidate long positions ahead of the week-long festivity. Nippon Oil’s withdrawal of a 20,000-tonne sell-tender for H1/H2 March lifting on Monday, after deeming bids as being too low, also underscored the lack of buying interest in PX from traders and end-users.

The Asian benzene and toluene markets has been on a downtrend in the past two weeks, pressured by high supply and weakening demand in this region, said traders and producers.

Demand for toluene has softened ahead of the Lunar New Year break next week, while benzene demand was also expected to decline from February due to the start of a turnaround season in key downstream styrene monomer (SM) units in this region, said market participants.  

Supply has also risen for both as crackers, reformers, toluene disproportionation (TDP) and hydro-dealkylation (HDA) units have been operating at almost full load on the back of good margins. Margins of aromatics producers have been healthy in the past weeks, as the spread from naphtha to benzene and toluene have been well above $150/tonne mark needed to cover costs.

($1 = €0.67)

Additional reporting by Loh Bohan and Mahua Chakravarty

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Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Felicia Loo

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