Asia naphtha prices range-bound on world equity slump

11 August 2011 07:06  [Source: ICIS news]

By Felicia Loo

Players in Asia are waiting for global equity markets to settle so that a clearer price direction for naphtha can be foundSINGAPORE (ICIS)--Naphtha prices in Asia are expected to be range-bound, with players waiting for direction as the tumult in the equity markets this week sparked off fears of a global economic slump and lower demand for plastics, traders said on Thursday.

Naphtha, the feedstock for all petrochemicals, closed at $896.50-898.50/tonne (€627.55-628.95/tonne) CFR (cost & freight) Japan on Wednesday, the lowest since 28 June when prices were at $877.50-879.50/tonne CFR Japan, ICIS data showed.

Prices were hit amid a global oil slump over the past few days, but crude oil futures bounced higher on Wednesday and dropped again in Asian trading on Thursday, beset by woes of the European debt crisis.

By 03:43 GMT on Thursday, September NYMEX light sweet crude futures dropped by 58 cents/bbl to $82.31/bbl. Naphtha prices stood at $900-903/tonne CFR Japan on Thursday, supported by overnight crude gains.

“The naphtha market seems balanced in Asia. There will be some arbitrage supply from the Mediterranean and spot demand is quite stable,” said a trader.

The West-East spread is not workable at a narrow $10/tonne at this point, taking into account freight costs of around $30/tonne, traders said.

However, a booking was made last week for 75,000 tonnes of naphtha to move from the Mediterranean to Asia in the second half of September, they added.

It remains to be seen whether prices will trend lower in the coming weeks, although there are some signs that a bearish market could result, traders said.

“The backwardation has definitely got narrower. It’s very volatile,” said one trader,

The spread between contracts for the second half of September and the second half of October narrowed to $1/tonne in backwardation from just over $1/tonne earlier in the week, while the naphtha crack spread versus Brent crude futures weakened by $1.02/tonne to $106.88/tonne in the same period.  Still, the crack spread was higher than $81.60/tonne seen on 4 August, ICIS data showed.

Prices may draw support from news that Taiwan’s Formosa Petrochemical Corp (FPCC), which may restart its 540,000 bbl/day refinery in Mailiao in the latter part of August and may resume production at its 700,000 tonne/year No 1 cracker before November.

FPCC is Asia’s top spot naphtha buyer.

The cracker has been shut since 12 May.

A spate of plant outages over the past year, including a fire in late July, led to the full shutdown of FPCC’s 540,000 bbl/day refinery since early August. 

For now, FPCC is not out to secure any spot barrels as naphtha inventories are very high, traders said.

The stockpiles were heard to be around 500,000 tonnes, they added. With the refinery off line, domestic naphtha loss is equivalent to 150,000-200,000 tonnes/month, traders said.

“Formosa may not need to buy spot cargoes at this point because they are getting term barrels,” one trader said.

The world economy remains fragile amid a deepening Europe debt crisis. Another severe downturn in the US economy and in Europe is likely to take a heavy toll on Asian exports, the region’s main engine of growth.

The Chinese economy may slow further as the government is likely to continue tightening its monetary policy as inflation continues on an uptrend.

China’s inflation in July was at a new three-year high of 6.5%.

“The [naphtha] market is confusing right now. We need to wait and see what’s next,” a trader said.

($1 = €0.70)

For more on naphtha, visit ICIS chemical intelligence

By: Felicia Loo

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