UpdateUS-bound supply of MidEast naphtha falls; Asia to get excess

03 August 2010 10:46  [Source: ICIS news]

(recasts throughout, adds impact on Asian naphtha market supply)

SINGAPORE (ICIS)--Only 100,000-150,000 tonnes of Middle East physical naphtha could find homes in the US for loading this month, down sharply from volumes initially expected as rising freight costs and limited demand capped deep-sea opportunities, traders said on Tuesday.

Some 300,000-500,000-tonne naphtha of Middle East origin was supposed to head to the US in August.

On signs of lower arbitrage fixtures, the price spread between first-half September and October contracts has widened to -$2.50/tonne (-€1.9/tonne) on Tuesday from -50 cents/tonne from Monday, and the naphtha crack spread versus Brent crude futures fell to a nine-session low to $69.25/tonne versus Brent, ICIS data showed.

Traders had hoped for a diversion of spot Middle East supply to the US to help alleviate the glut in Asia.

Usually, Middle East producers ship naphtha to Asia. But with the US-bound arbitrage flow diminishing, surplus Middle East spot supply would eventually land in Asia, they said.

“In reality, the US can’t absorb so much naphtha. Yes, on paper, the arbitrage seems to work but less than half the volume could make it to the U.S. Gulf Coast,” said a trader in Singapore.

The initial volume of up to half a million tonnes was workable on paper, meaning it could have been profitable, traders said.

“But shipping costs have gone up because there is so much spot supply in the market,” another trader said.

“The US can’t absorb so much supply,” a third trader said.

Now with outright naphtha prices in Asia climbing up to a seven-week high on robust crude futures at above $81/bbl, the petrochemical producers were in for a margin squeeze as the downstream markets did not look rosy either, traders.

“The producers will react to the high naphtha prices. They will address the issue,” said one trader.

Naphtha demand in this region was trickling down as end-users took their time to buy cargoes at a time of ample supply, traders said.

Meanwhile, ethylene prices hobbled at $850-880/tonne CFR NE Asia, compared with $880-900/tonne CFR NE Asia four weeks ago, ICIS data showed.

“I don’t see Asian naphtha turning for the better. In fact, it’s for the worst,” said a trader.

($1 = €0.76)

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By: Felicia Loo

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