FocusAsia naphtha nears 3-year peak on low deep-sea supply

28 April 2011 07:41  [Source: ICIS news]

By Felicia Loo

European refiners are using naphtha for blending amid a gaping arbitrage window to ship naphtha material to the US Gulf coastSINGAPORE (ICIS)--Asia naphtha prices are expected to reach a three-year high, as robust global crude futures and reduced deep-sea supply from the West will result in a further upside to price levels, traders said on Thursday.

The first-half June naphtha contract rose to $1,099-1,102/tonne (€747-749/tonne) CFR (cost & freight) Japan at 12:00 hours Singapore time (04:00 GMT) on Thursday, up $11.50-12.50/tonne from the settlement on Wednesday, according to ICIS data.

The last time prices surpassed the $1,100/tonne CFR Japan mark was on 18 July 2008, when naphtha hit $1,136-1,138/tonne CFR Japan, ICIS data showed.

“I thought naphtha prices have peaked, but it isn’t the case. There is more upside to prices because fundamentally, prompt supplies are very tight,” said one trader in South Korea.

The backwardation between first half June and first half July contracts has widened to $13.50/tonne, the steepest since March as the naphtha market is facing a structural shortfall.

Naphtha cargoes from northwest Europe and the Mediterranean are estimated to be 250,000 tonnes for May arrivals in Asia, down sharply from the regular monthly arbitrage imports of around 300,000-500,000 tonnes, traders said.

“The circumstances make a bullish naphtha market in Asia,” a Singapore-based trader said.

European refiners are churning out more gasoline at the expense of naphtha, and at the same time, these plants are using naphtha for blending amid a gaping arbitrage window to ship material to the US Gulf coast, traders said.

In the weeks leading to the summer driving season, the US continues to face a gasoline supply crunch because of refinery snags, they added. US oil inventory figures showed a larger-than-expected draw in gasoline.

US gasoline prices have spiked as a result of the loss of about 800,000 bbl/day of crude capacity because of power outages at three Texas refineries. The combined hike in futures prices and spot differentials led absolute spot prices to jump 7.25 cents/gal to $3.39/gal on Wednesday.

“The structural fall in naphtha supply from the West will continue to support prices in Asia. Prices are expected to sustain the bullish run even in the third quarter,” the trader said.

Meanwhile, spot premiums have soared to above $30/tonne on a Middle East FOB (free on board) basis.

India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) has sold by tender 35,000 tonnes of naphtha to Marubeni at a premium of $34/tonne to Middle East quotes FOB for loading from New Mangalore port on 28-30 May.

MRPL last sold via tender 35,000 tonnes of naphtha to Cargill at a premium of $29/tonne to Middle East quotes FOB for loading on 17-19 May.

India’s Reliance Industries has sold 55,000 tonnes of naphtha to Cargill for loading from Sikka in the middle of May. Cargill won the cargo at a premium of $35/tonne to Middle East quotes FOB.

Petrochemical demand, on the other hand, remains somewhat stable, traders said. Ethylene prices held steady at $1,350-1,380/tonne CFR NE (northeast) Asia on Wednesday, ICIS data showed.

“Now the question is, with feedstock naphtha prices at such high levels, shouldn’t the end-users consider cutting runs? It doesn’t seem to be the case. No one sounds desperate at this juncture,” said a trader.

Naphtha is a fraction of crude and is composed of different mixtures of flammable liquid hydrocarbons. It can be used either for blending into gasoline or as a petrochemical feedstock.

($1 = €0.68)

For more on naphtha, visit ICIS chemical intelligence
Please visit the complete ICIS plants and projects database
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Felicia Loo

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