FocusAsia naphtha to stagger on weakening margin, volatile crude

06 October 2011 07:44  [Source: ICIS news]

A naphtha cracking unitBy Felicia Loo and Clive Ong

SINGAPORE (ICIS)--Asia’s naphtha prices are likely to be in doldrums because of receding demand for key downstream petrochemicals, falling margins on products and continued volatility in crude values, traders said on Thursday.

Naphtha prices in Asia closed on Wednesday at $860-861/tonne (€645-646/tonne) CFR (cost and freight) Japan - the weakest level since 27 June, with the naphtha crack spread versus November Brent crude futures narrowing to a two-month low of $97.60/tonne, according to ICIS data.

At midday on Thursday, naphtha prices were higher at $866.50-869.50/tonne CFR Japan on the back of overnight gains in global crude futures following the release of US government data confirming an unexpectedly large fall in domestic crude stocks.

In Asian trade on Thursday, NYMEX crude and Brent crude softened but continued to trade above $79/bbl and $102/bbl levels, respectively.

“There are more [naphtha] cargoes available in the market and the premiums are narrowing,” said a northeast Asian trader.

He added that “margins are worsening and some petrochemical makers are already cutting runs” in northeast Asia.

Integrated LDPE margins fell by $56/tonne week on week to $448/tonne on 30 September, and HDPE margins lost $67/tonne to $298/tonne in the same period, according to ICIS.

Meanwhile, butadiene prices were assessed at $2,700-2,800/tonne CFR in the week ended 30 September, down by 20.8% from four weeks ago, ICIS data showed.

Weakening demand from the downstream styrene butadiene rubber (SBR), butadiene rubber (BR) and acrylonitrile-butadiene-styrene (ABS) segments further dampened buying appetite.

Spot prices of styrene monomer (SM) closed at below $1,300/tonne FOB (free on board) Korea on Wednesday due to persistently weak demand in the region. Prices closed at around $1,350/tonne FOB Korea on 30 September.

“The overall market is still weak as the fourth quarter is a traditionally slow season for SM and downstream styrenics market,” said a Korean trader.

With the uncertain economic outlook in the US and ongoing sovereign debt crisis in the eurozone, demand for China-made products is expected to stay weak. Consequently, consumption of styrenic resins and SM has weakened this year.

“With several plant outages and maintenance ongoing in Asia, SM supply is still ample as demand is poor,” said a Taiwanese SM end-user, who expects prices to ease further in the weeks ahead.

Reflecting a bearish market, South Korea’s Honam Petrochemical bought by tender 50,000 tonnes of open-spec naphtha for delivery to Yeosu and Daesan in the first half of November at premiums of $3.50/tonne and $4.00/tonne to Japan quotes CFR.

The premiums were higher in previous South Korean spot tenders, where the cargoes were awarded at Japan quotes plus $6.50/tonne for delivery in the second half of October, traders said.

Also, Taiwan’s Formosa Petrochemical Corp (FPCC) has been reticent in seeking spot naphtha supplies in the current bearish market, traders said. The company has delayed the restart of its 1.2m tonne/year No 3 cracker in Mailiao to next week after a turnaround from mid-August.

On 21 September, FPCC restarted its 700,000 tonne/year No 1 naphtha cracker located in Mailiao following a prolonged outage since May. The cracker is now running at 90% capacity.  The company also runs a 1.03m tonne/year No 2 cracker, which is operating at 100% capacity.

“The market is waiting for Formosa to buy spot naphtha supplies. But that hasn’t materialised,” a trader said.

The possibility of cuts on production rates by downstream players is weighing on naphtha prices, traders said.

Honam Petrochemical’s Daesan-based PP plant will remain shut for another 10 days after the 20-day turnaround because of poor market conditions, a company source said.

A source from Korea Petrochemical Industry Co said the company is considering cutting production at its 470,000 tonne/year PP plant at Ulsan because of squeezed margins, and that it will take a decision next week when the China market reopens.

Regional crackers are not seeking much naphtha supplies in the spot market, traders said.

“Crackers are minimising their requirements and their [naphtha] stocks are more than comfortable,” one trader said.

($1 = €0.75)

Additional reporting by Chow Bee Lin and James Dennis

For more on naphtha, visit ICIS chemical intelligence
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Felicia Loo

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