FocusAsia naphtha could fall below $600/tonne on supply glut

06 July 2010 11:08  [Source: ICIS news]

By Felicia Loo

SINGAPORE (ICIS news)--Asian naphtha prices could dive below the $600/tonne mark, the lowest in about nine months, as the market faces a supply deluge from the Middle East and India amid slow demand, traders said on Tuesday.

If that happens, naphtha prices would be the lowest since October 2009, when they were pegged at $598.75/tonne in the week ended 9 October, ICIS data showed.

By midday Singapore time on Tuesday, prices stood at $610-613/tonne CFR (cost and freight) Japan for second-half August delivery, down from the previous close of $617.50-619.50/tonne CFR Japan, as assessed by ICIS.

Showing signs of a bearish market, the naphtha price spread between contracts for the second half of August and the second half September widened to a contango of $2/tonne, compared with -$1/tonne two weeks ago.

The crack spread versus Brent crude futures tumbled to $78.05/tonne, down from $111.38/tonne a month ago, ICIS data showed.

“There are more and more FOB (free on board) barrels from the Middle East and India. But, on the other hand, cracker demand is stable. And, because of poor margins, there is a lesser need for heavy naphtha,” said a trader.

“At this moment, this kind of contango will last for a while,” he added.

Usually, in times of a balanced or a bullish market, the inter-month spread between the different monthly contracts tends to be in positive territory, which is commonly known in the market as backwardation.

Underscoring the current weak market conditions, a string of recent tender awards recorded slim premiums.

India’s Oil and Natural Gas Corp sold 35,000 tonnes of naphtha by tender for 18-19 July loading from Mumbai at a premium of $6-7/tonne to Middle East quotes FOB, compared with premiums of $9.00-9.50/tonne fetched in tender sales by Bharat Petroleum Corp for second-half-of-July loading from Mumbai.

Saudi Aramco sold by tender 55,000 tonnes of naphtha for loading from Yanbu and Jeddah in mid-July, at a premium of $7/tonne to Middle East quotes FOB.

Qatar-based Tasweeq offered 100,000 tonnes of naphtha via tender for loading in the second half of August. The tender, which closed on 15 July, included 25,000-50,000 tonnes of light naphtha as well as 30,000-50,000 tonnes of full-range naphtha.

Kuwait Petroleum offered via tender some 24,000 tonnes of light naphtha for early-August loading.

There has been a surge in spot Middle East shipments to Asia, as some producers cannot renew term contracts, while increased condensates feedstock supply has prompted Abu Dhabi National Oil Co (Adnoc) to churn out more naphtha from its splitter, according to traders.

“So they are flooding the market now,” said a trader.

In addition, with the monsoon season about to start in India, there is lower domestic demand for naphtha for power generation and the fertilizer sector, traders said.

One trader said: “The market sentiment is definitely getting weaker.”

Reflecting poor conditions downstream, spot paraxylene (PX) prices have fallen to a nine-month low of $845-855/tonne (€676-684/tonne) CFR Taiwan and/or CMP (China Main Port), as Asia struggles with a supply glut.

According to market estimates, integrated refinery-based producers typically require a naphtha/PX spread of $250-300/tonne to break even and cover operational costs.

The naphtha/PX spread dropped to $245/tonne in June and has further narrowed to $235/tonne since then, but producers have remained adamant about maintaining high operating rates at their facilities.

The ethylene market has been not spared either. Ethylene supply could lengthen amid ExxonMobil’s recent outage at its downstream polyolefin plants in Singapore, exerting downward pressure on prices, which are currently hovering at around $900/tonne CFR NE Asia (northeast Asia).

Additional reporting by Peh Soo Hwee, Bohan Loh and Clive Ong

For more on ExxonMobil and other naphtha producers, visit ICIS company intelligence
Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
To discuss issues facing the chemical industry visit
ICIS connect

By: Felicia Loo

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