FocusAsia naphtha rebound likely short-lived; oversupply persists

15 June 2012 11:49  [Source: ICIS news]

By Ong Sheau Ling

SINGAPORE (ICIS)--Asia’s naphtha prices snapped 15 weeks of declines but the rebound may be short-lived as availability of spot cargoes just increased from India and the Middle East, while demand from downstream petrochemical industry has remained subdued, market sources said on Friday.

At the close of trade, open-spec naphtha prices were assessed at $756.00-758.00/tonne (€597.24-599.82/tonne) CFR (cost and freight) Japan for first half of August loading – up $17.00/tonne from Thursday on the back of firmer global energy values, according to ICIS.

Naphtha crack spread versus August Brent crude futures has also recovered to $23.57/tonne on 15 June, after landing on a three-and-a-half year low of $3.27/tonne on 13 June, when naphtha prices for second-half July loading also hit a 20-month low at below $740/tonne CFR Japan.

“The industry still looks grim,” a South Korean trader said.

The market has remained in a contango for the sixth trading session, indicating a bearish market because prompt prices are weaker than forward prices.

 “The news of the restart of FPCC’s [Formosa Petrochemical Corp] No 3 cracker did lift sentiment, but in fact, FPCC is still not buying spot. It is just going to use its inventories in the tanks for the moment,” a Singapore-based trader said.

FPCC, which is a major buyer of naphtha in Asia, restarted its largest cracker in Mailiao that has a 1.2m tonne/year ethylene capacity on 15 June after a two-week shutdown, a company source said.

Meanwhile, availability of naphtha has increased with Abu Dhabi National Oil Co's (Adnoc) recent sales tender of 75,000 tonnes of splitter naphtha for loading on 7-9 July – a left-over from its term supplies.

“Those unsold term supplies from the Middle East have increased spot availability. This worsens the oversupply situation,” the trader said.

Adnoc's spot sales tender fetched at a premium of $13/tonne to its FOB (free on board) pricing formula.

“With the premium fetched by the spot purchases being half of the [one-year] term [contract for July 2012 to June 2012], this shows how bad is the spot market now,” another Singapore-based trader said, referring to the results of ADNOC’s tender.

A bearish market is also evident based on a late-week tender for a second-half July arrival cargo by South Korea’s Honam Petrochemical that was settled at a discount of $4-5/tonne to Japan quotes CFR (cost and freight). It was the first discount on a tendered naphtha cargo in seven months.

In other deals, premiums paid on naphtha cargoes are getting thinner.

India-based Mangalore Refinery and Petrochemicals Ltd (MRPL) sold by tender a 35,000-tonne naphtha parcel for loading on 11-13 July at a premium of $14/tonne to Middle East quotes FOB, down by 22% from its previous sales.

“Every next tender closed, the premium becomes smaller. There is no sign of recovery,” a third Singapore-based trader said.

With product margins still squeezed, most cracker operators said they are keeping spot purchases at a bare minimum.

Ethylene prices were softer week on week at $880-930/tonne CFR NE (northeast) Asia at the close of trade on 15 June. Butadiene (BD) prices also slipped to $1,800-1,900/tonne CFR NE Asia, ICIS data showed. 

“Now, [the] situation is worse. Naphtha goes up but downstream prices go down, the product margins will be further squeezed,” a cracker operator said.

($1 = €0.79)

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

By: Ong Sheau Ling
+65 6780 4359

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