Asia naphtha prices to fall on Formosa cracker restart delay

28 July 2011 06:37  [Source: ICIS news]

By Felicia Loo

Another fire at FormosaSINGAPORE (ICIS)--Naphtha prices in Asia are likely to extend their losses in the coming weeks, beset by the cracker issue of Taiwan’s Formosa Petrochemical Corp (FPCC) where a fire took place again at its Mailiao complex just two days ago, traders said on Thursday.

FPCC, the region’s top spot buyer of at least 300,000 tonnes of naphtha each month, may delay the restart of its 700,000 tonne/year No 1 cracker after a fire broke out at a hydrogen pipeline in the vicinity of the complex.

The company had meant to restart the cracker this week. It was taken off line following a pipeline fire at the petrochemical complex on 12 May.

The 1.03m tonne/year No 2 and 1.2m tonne/year No 3 crackers at the same site are running normally.

Meanwhile, the No 3 cracker is scheduled to be shut for a 40-45 day turnaround in the middle of August, but it is not clear if this will be postponed, sources said.

“The Formosa issue is bearish for the market. Prices have taken a downturn,” said a trader in Seoul.

On Wednesday’s close, the naphtha crack spread versus Brent crude futures fell to $114.08/tonne, the weakest in the fourth successive trading session, according to ICIS data.

The intermonth spread between the contracts for the first half of September and the first half of October narrowed to parity on Wednesday from a backwardation of $1/tonne, ICIS data showed.

Naphtha prices were at $993.50-996.50/tonne (€695.45-697.55/tonne) CFR (cost & freight) Japan at 12:00 hours Singapore time on Thursday, down from $998-1,000/tonne CFR Japan on Wednesday because of fears that the US might default on its debts.

Just a week ago, the Asian naphtha market steamed ahead on the back of strong gasoline blending requirements in Europe, traders said.

“The factors of only a strong gasoline market and limited arbitrage are supporting naphtha [prices],” said another trader.

Naphtha prices soared by $46.50/tonne from the previous week to $1,007.50-1,009.50/tonne CFR Japan on 22 July, while the intermonth spread strengthened to $1/tonne in backwardation from a contango of $1/tonne in the same period, ICIS data showed.

European refineries are using naphtha for gasoline blending as motor fuel supply remains tight there despite a greater-than-expected build in gasoline oil stocks in the US.

The stocks rose by 1m barrels in the week ending 22 July, according to the Energy Information Administration (EIA). 

However, a firming downstream market is helping to put a lid on price losses, traders said.

Many distributors in China are withholding their offers for linear low density polyethylene (LLDPE) in the domestic market on expectations that prices will rise further in August because of several scheduled plant turnarounds and the unplanned shutdown of Formosa Plastics Corp (FPC)’s LLDPE plant in Taiwan.

Their bullish outlook was reinforced when local producer Sinopec announced on Wednesday that its July allocations for southern and northern China were sold out, the distributors said.

Sporadic offers for locally produced and imported LLDPE were at yuan (CNY) 11,000-11,300/tonne ($1,708-1,755/tonne) EXWH (ex-warehouse) on Wednesday, against buying ideas at CNY11,000-11,250/tonne EXWH, according to Chemease, an ICIS service in China.

The overall sentiment remains cautious and subdued.

“The weight of the Formosa issue is heavy. The market will wait and see how the situation will pan out,” one trader said.

($1 = €0.70, $1 = CNY6.44)

For more on naphtha, visit ICIS chemical intelligence
For more pricing intelligence, visit ICIS pricing
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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