OUTLOOK '11: Asia naphtha to firm until cracker turnarounds begin

29 December 2010 04:32  [Source: ICIS news]

Winter in Germany. The cold snap in Europe and US northeast supports crude at above $91/bbl, which is buoying up naphtha values.By Felicia Loo

SINGAPORE (ICIS)--Asia naphtha prices are expected to firm in early 2011, stoked by robust global crude futures at above $91/bbl (€69/tonne) as a bitter cold winter in Europe and the US northeast sparks demand for home heating, traders said.

Meanwhile, refinery maintenance works in the Middle East would also drain naphtha shipments to Asia in the next few months, at a time when Asian refineries are ramping up distillate production to meet peak heating oil consumption in the northern hemisphere, they added.

Naphtha may continue its bull run for the next few months, until a slew of cracker turnarounds kick in during the second quarter, traders said.

“Naphtha is bullish in the first quarter. Petrochemical margins are okay especially for integrated crackers,” said a trader in Singapore.

Integrated polypropylene (PP) margins were valued at $126/tonne in the fourth quarter to date, versus $111/tonne in the third quarter of the year, according to a ICIS weekly margin report on 17 December.

Naphtha supply is expected to fall, as Abu Dhabi National Oil Company (ADNOC) would shut its 140,000 bbl/day condensate splitter for a month starting from mid-January, traders said.

Saudi Aramco was expected to slash naphtha exports to Asia by half a million tonnes in the first half of 2011 because of refinery shutdowns in Rabigh and Jubail, they added.

However, naphtha crackers in Asia would likely remain running at high rates, if not at full tilt, traders said.

If the current cold snap in the northern hemisphere was to last longer than expected, refineries in Europe would continue to churn out more diesel and less naphtha arbitrage flows would go to Asia, traders said.

“(Naphtha) supply from the West would decrease and this would tighten supply in Asia,” one trader said.

Naphtha demand might wane in the second quarter of 2011 as cracker turnarounds increase. The turnaround season would start in February, with majority of the shutdowns in Japan and South Korea concentrated in March, April and May.

For the whole of next year, 19 crackers were slated for turnarounds compared with 30 this year, according to data obtained by ICIS. This translates to a production loss of more than 1m tonnes of ethylene next year.

Korea Petrochemical Industry Co (KPIC) is planning a 25-day shutdown at its 470,000 tonne/year cracker in Onsan, while Samsung Total would have a longer turnaround at its 850,000 tonne/year cracker in Daesan from end-April to early June, market sources said.

Other notable turnarounds include LG Chem’s 760,000 tonne/year cracker and Yeochun NCC’s 857,000 tonne/year ethylene plant.

“When is the turning point [for naphtha]? The market will be strong in February but following that, the [cracker] turnarounds will hit naphtha demand,” said a trader.

Naphtha - Asia vs Europe price chart

Spot Naphtha - CFR Japan quotes

($1 = €0.76)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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By: Felicia Loo

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