FocusAsia naphtha prices to fall on eroded petrochemical margins

13 July 2011 06:52  [Source: ICIS news]

By Felicia Loo

The naphtha crack spread has fallen to below $92/tonne.SINGAPORE (ICIS)--Asia’s naphtha market is expected to come under pressure in the next three months, amid uncertainty in the global economy that threatens to dampen downstream petrochemical demand, traders said on Wednesday.

The market shows signs of turning bearish, despite a closed arbitrage window for flows from Europe. The naphtha crack spread was assessed at $91.85/tonne (€65.20/tonne) on Tuesday, down sharply from a one-month high of $102.38/tonne on 7 July 2011, according to ICIS data. The inter-month spread remained in a contango of $1/tonne.

“The market is bearish, surely. There are many available barrels for prompt loading and many leftover cargoes from first-half August loading,” said a trader.

The second-half August naphtha contract closed at $956.50-957.50/tonne CFR (cost & freight) Japan, the weakest since 5 July, ICIS data showed.

“There are more spot barrels from the Middle East and India,” the trader added.

Ethylene margins plunged by $135/tonne week on week to $215/tonne on 8 July, according to the ICIS data, as a result of a hike in naphtha prices in tandem with global crude futures.

The margins have turned negative as the break-even costs for processing naphtha into ethylene are typically $250-300/tonne, traders said.

On a macro level, traders are worried about the state of the world economy and the resulting demand for petrochemicals, typically the yardstick for the health of the economy, traders said.

China’s manufacturing sector will see slower growth in the coming months because of weak global demand, analysts said. The country’s purchasing managers’ index (PMI) hit a 28-month low of 50.9% in June as a result of the government’s tightening of monetary policies.

Overall domestic demand is soft because of restrictions on the property market and car consumption, high loan costs and destocking among producers. The weak economies in the US and Europe are also lowering overseas demand from China, trends that are expected to last over the next two months.

“The economy is getting worse. The petrochemical margin is becoming worse. The uncertainty is hurting naphtha,” said a trader in Singapore.

The bearish outlook will be amplified in the next few weeks as several cracker turnarounds are to take place in Asia.

“There will be less spot demand for barrels [of naphtha],” said one trader.

Petrochemical giant Shell is expected to shut its 800,000 tonne/year mixed-feed cracker at Bukom in Singapore next month. The plant will likely be taken off line around 11 August for more than 30 days, partly for an equipment change.

Taiwan’s CPC Corp, which recently shut its 385,000 tonne/year No 4 naphtha cracker in Linyuan because of unspecified problems, is scheduled to take its 500,000 tonne/year No 5 unit in Kaohsiung off line for 40-45 days of scheduled maintenance in mid-August.

China’s Shanghai SECCO Petrochemical is planning to take its 1.2m tonne/year ethylene (C2) cracker in Shanghai off line on 10 August for 20 days of annual maintenance.

Downstream, a weak paraxylene (PX) market is placing downward pressure on naphtha, traders said.

PX prices in Asia slipped on Tuesday amid ample inventories among end-users and weaker downstream purified terephthalic acid (PTA) values.

Spot PX prices were at $1,395-1,405/tonne CFR Taiwan and/or China Main Port (CMP) on Tuesday, down by $5/tonne from Monday’s close, according to ICIS data.

PTA prices fell by $10-15/tonne on Tuesday and were hovering at around $1,130-1,145/tonne CFR China. Most end-users have ample PX inventory and are not in a rush to make additional purchases.

Methyl methacrylate (MMA) bulk prices in southeast Asia have fallen for the first time in 27 months and may remain soft because of a seasonal lull in downstream demand.

Benchmark MMA prices for southeast Asian cargoes of more than 500 tonnes were assessed as down by $20-50/tonne week on week at $2,450-2,530/tonne CFR southeast (SE) Asia on 8 July, ICIS data showed.

The seasonal lull in Indonesia and Malaysia, as a result of the upcoming Muslim fasting month of Ramadan in August, has weakened the demand for MMA in southeast Asia. Regional demand in Asia has also weakened, with key regions such as South Korea, Japan, Thailand and India affected by the current monsoon season, market observers said.

Additional reporting by Loh Bohan and Junie Lin

($1 = €0.71)

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By: Felicia Loo

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