09 November 2010 04:54 [Source: ICIS news]
By Felicia Loo
SINGAPORE (ICIS)--Most naphtha crackers in Asia, with downstream derivatives, continue to operate at near full capacity or higher, thanks to a firm integrated margin, but sentiment may turn bearish in the face of an ethylene price slump, traders said on Tuesday.
The integrated polyethylene (PE) margin held firm at $235/tonne (€169/tonne) in the week ended 5 November, ICIS data showed.
On the other hand, the ethylene or steam cracker margin plummeted to $34/tonne NE (northeast) Asia in the same period, versus $72/tonne the previous week and $252/tonne in September, the data showed.
"Crude has moved up a lot, but ethylene is the same. The margin is really in trouble," said a trader in Singapore, referring to the persistent weakness in the basic petrochemical building block.
As a rule of thumb, cracking operators may enjoy full cost recovery if the spread between naphtha and ethylene hovers at a minimum of $250/tonne, traders said.
Ethylene prices fell to $980-1,000/tonne CFR (cost & freight) NE Asia last week, against month-ago levels of $1,110-1,150/tonne due to an armada of supply from the Middle East, ICIS data showed.
"The bearish sentiment is setting in," another trader said.
Regional integrated naphtha crackers are running at high rates because of a healthy polymers market, adding to the flood of ethylene supply.
Meanwhile the quantitative easing policy (QE2) of the US – to flush the market with more dollars so as to stimulate spending in the world’s top energy user – resulted in a jump in commodity and oil prices, which in turn pushed up naphtha prices to a two-year high, traders said.
Asia naphtha prices topped $800/tonne on Monday, the highest level since $814/tonne achieved in the week ended 26 September 2008, ICIS data showed.
The non-fully-integrated crackers might buckle under pressure, traders said.
Indonesia’s Chandra Asri cut operating rates at its 600,000 tonne/year naphtha cracker in Merak, West Java, to 75-80% since last week, partly due to squeezed margins from weakening ethylene spot prices.Before the reduction, the cracker operated at 93-94% of its nameplate capacity.
But integrated crackers such as Maruzen Petrochemical’s 520,000 tonne/year cracker in Chiba, Japan, continued to run at 100%.
"The polymers market is doing well, so there is no need to cut runs," said a trader.
Japan’s Mitsubishi Chemical is operating its three naphtha crackers, with a total capacity of 1.278m tonne/year, at near full tilt.
Thailand’s Integrated Refinery & Petrochemical Complex (IRPC) is currently running its 350,000 tonne/year naphtha cracker in Rayong at 95% of its nameplate capacity.
The current strength in naphtha was considered temporary, as the market has been buoyed by low shipments from the Middle East and India where a raft of refinery maintenance is under way, traders said.
India is expected to export around 700,000 tonnes of naphtha in November versus the monthly average of 800,000-900,000 tonnes, they added.
The spread between second-half December and second-half January naphtha contracts shrank to a backwardation of $4/tonne on Monday from $4.50/tonne on Thursday. Singapore oil markets were closed on Friday for a public holiday.
Signalling a possibly bearish market, the naphtha crack spread versus Brent crude futures weakened to $137.48/tonne, the lowest since 13 October.
"Ethylene weakness will affect sentiment somehow," one trader said.
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