FocusAsia naphtha to surge on lower supply from Europe, India

27 January 2012 07:39  [Source: ICIS news]

By Felicia Loo

SINGAPORE (ICIS)--Asian naphtha prices will draw support from tighter supply because of limited arbitrage shipments from Europe, where the crackers are using more naphtha instead of costlier propane, traders said on Friday.

Prices will also be buoyed by lower Indian exports for the second successive month, they added.

“It is supply-driven,” said a trader, explaining why prices have surged and they are likely to rise further.

Open-spec naphtha prices for the first half of March rose to $974-977/tonne (€740-743/tonne) CFR (cost and freight) Japan during the morning trade on Friday, in tandem with global crude values, according to ICIS data.

On Thursday, the naphtha crack spread surged to an eight-month high of $143.38/tonne against Brent crude futures, the data showed.

“Prices are tracking the strength in Europe,” another trader said.

Refinery shutdowns in Europe have sapped supply availabilities of the petrochemical feedstock naphtha, resulting in tighter arbitrage shipments to Asia, traders said.

“The East (Asia) requires heavy naphtha arbitrage supply but there isn’t”, said one trader.

European crackers are using more naphtha as alternative feedstock propane is getting more expensive, traders said.

In addition, the robust gasoline prices in Europe prompted refineries to divert naphtha supplies for gasoline blending, they added.

Overall, the naphtha market was buoyed by the strength in global crude values, which strengthened in the latter part of week, tracking a rally in the stock market.

A weak dollar also supported crude oil, after the US Federal Reserve statement said it will keep interest rates unchanged until 2014 in an attempt to stimulate the economy. The market is facing low quantities from Indian refiners, traders said.

India is expected to export 700,000 tonnes of naphtha in February, unchanged from January volumes but sharply less than its December outflows largely because of lower refinery output. Indian refineries were estimated to have shipped out 900,000 tonnes of naphtha during December 2011.

India’s Reliance Industries is offering less naphtha cargoes on the spot market because of refinery maintenance, traders said.

The company has cut February export availabilities to two cargoes from the usual three to four lots, they added.

A lighter cracker turnaround season will see firm spot buying of naphtha, traders said.

“The market is also expecting strong buying after China comes back from the Lunar New Year holiday,” said one trader.

Expectations that China, the biggest petrochemical importer in Asia, will adopt a more loose monetary policy going forward will boost trade in the commodities market.

The Chinese authorities are widely expected to adjust down the reserve requirement ratio for banks after China posted its slowest growth in two-and-a-half years, of 8.9% in the fourth quarter of 2011.

In China, a loosening of its tight monetary policy would free up liquidity for cash-strapped small and medium-sized enterprises.

($1 = €0.76)

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Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Felicia Loo

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