Asian naphtha rallies as demand improves and supply tightens

20 February 2012 00:00  [Source: ICB]

Asian naphtha prices are expected to rise above the $1,000/tonne level as the regional market faces supply constraints amid healthy demand from dominant buyer Formosa Petrochemical Corp. (FPCC), which has bolstered its cracker rates to meet stronger downstream derivative demand.

Firm global crude futures continue to support prices. A lighter cracker turnaround has started to impact the market, as rising spot demand is being met by sharply lower arbitrage volumes from Europe. The arbitrage window is expected to stay firmly shut, worsening the tight supply in Asia.

Cracker maintenance is lighter this year than in 2011, with no South Korean crackers taking plants off line in April, according to an ICIS survey. China's Jinlin Chemical will shut its 850,000 tonne/year cracker in Jilin for a month in April and Indian Oil will take its 857,000 tonne/year cracker in Panipat off line for 45 days starting in early April.

In April 2011, four South Korean crackers shut their respective plants for regular maintenance from April to May, with a total 2.93m tonnes/year of cracker capacity idled during that period, the ICIS survey shows. It remains to be seen whether the Japanese crackers will consider ramping up run rates because of strong downstream demand.

Activity levels in the European naphtha cargo market have seen an upturn, which was attributed to stronger demand from both the gasoline blending sector and petrochemical end-users. Buyers of naphtha are believed to be replenishing their stocks after destocking towards the end of 2011.

Naphtha table Naphtha table

Demand for US Gulf heavy naphtha has remained relatively healthy from both the gasoline sector and petrochemical industry.

Despite an increase in premiums for US Gulf coast spot gasoline over West Texas Intermediate crude oil, which continue to keep heavy naphtha differentials at a discount to spot gasoline, prices for heavy naphtha have continued to be mainly influenced by the rise and fall in gasoline prices.

US Gulf spot gasoline prices are increasing as a busy refinery turnaround season in the region is underway and has kept gasoline supplies low.

  • Additional reporting by Neha Popat and Tony Dillon in London

Author: Felicia Loo and Anna Matherne

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