FocusAsia naphtha may bottom out on Taiwan’s demand rebound

13 August 2010 05:03  [Source: ICIS news]

By Felicia Loo

FormosaSINGAPORE (ICIS)--Asian naphtha prices may be bottoming out, stoked by demand from Taiwan’s Formosa Petrochemical Corp which could help soak up surplus from the Middle East, traders said on Friday.

The spread between second-half September and second-half October contracts was assessed at a contango of $2.00/tonne (€1.6/tonne) on Friday mid-day, compared with a contango of $2.50/tonne last week, ICIS data showed.

The spread between first-half October and first-half November contracts was valued at 50 cents/tonne in backwardation.

The weaker the contango, the firmer the front-month price and this could point to a market in a rebound, traders said.

On signs of an improving market, the naphtha crack spread versus Brent crude futures scaled up to a near two-month high of $101.63/tonne in mid-week, and then receded to $92.03/tonne on Thursday’s close due to an overall decline in the crude oil complex, ICIS data showed. Nonetheless, the crack spread was much stronger versus $57.20/tonne a month ago.

“Currently, the sentiment has firmed up because of Formosa,” said a trader, adding the open-spec naphtha cargoes were snapped up following the company’s tender issuance.

For instance in the physical market, Glencore sold a cargo to Cargill at $694/tonne for second-half September delivery on Wednesday, and BP sold a lot to Shell for first-half October delivery at $670.50/tonne on Thursday.

Formosa bought via tender 150,000 tonnes of naphtha, for delivery in the second half of September, at a slimmer discount of $2-3/tonne to Japan quotes CFR (cost and freight), less than a week after it bought 30,000-50,000 tonnes of naphtha for first-half September delivery at a discount of $5-7/tonne to Japan quotes CFR.

The Asian market was earlier hit after major buyer, Formosa, stopped being active due to the closures of its 540,000 bbl/day refinery and 700,000 tonne/year No 1 cracker in Mailiao following separate outages last month.

But the company’s No 1 cracker is now likely to be restarted late September or early October.

Formosa would also push back the turnaround of its 1.03m tonne/year No 2 naphtha cracker, to the end of September or early October for around 40-45 days.

Given that one of its three crude units has remained shut, Formosa would continue to scout for naphtha supply, traders said.

Two of the three crude distillation units (CDU) at the refinery, which have a capacity of 180,000 bbl/day each, were back on stream and were running at full capacity.

One of the CDUs restarted on 29 July, while a second unit came back on line on 3 August. The third CDU was still shut and was not expected to come back on stream until October, at the earliest, due to maintenance work.

As spot naphtha demand started to pick up, the surplus from Qatar and Abu Dhabi could find homes within Asia, traders said.

“There are more naphtha exports from the Middle East. But Asia’s getting balanced (in terms of demand and supply),” said a trader in Singapore.

The crackers in this region continued to operate at full tilt, buoyed by the fairly attractive petrochemical markets, traders said.

“The propylene market is okay. The (integrated) crackers are not cutting runs at this juncture,” said a trader in Tokyo.

Downstream, prices for ethylene and propylene nudged higher compared with four weeks ago, ICIS data showed.

Propylene, which is the highly profitable by-product of cracking naphtha, was priced at $1,170-1,200/tonne CFR NE Asia, up from $1,060-1,080/tonne CFR NE Asia four weeks ago.

Ethylene, the basic petrochemical building block, climbed higher to $900-910/tonne CFR NE Asia from $860-870/tonne CFR NE Asia over the same period.

($1 = €0.78)

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

To discuss issues facing the chemical industry go to ICIS connect

By: Felicia Loo

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