FocusAsia naphtha at 21-month low on soft crude, Formosa outage

22 June 2012 06:27  [Source: ICIS news]

By Ong Sheau Ling

Petrochemical complex of Taiwan’s Formosa Petrochemical Corp (FPCC) – the largest naphtha buyer in AsiaSINGAPORE (ICIS)--Naphtha spot prices in Asia fell to a 21-month low on Friday to below $700/tonne (€560/tonne), tracking the losses of global energy values and perpetually bearish sentiment, traders and cracker operators said on Friday.

The bearish sentiment was partly a result of the outage at Formosa Petrochemical Corp (FPCC)’s Mailiao complex and also abundant spot offers from the Middle East and Indian refiners, they added.

On mid-day, the open spec Asian naphtha contracts for the first half of August fell by $6.50/tonne from Thursday to $699.00-701.00/tonne CFR (cost & freight) Japan on Friday, ICIS data showed.

August WTI was up 45 cents/bbl at $78.65/bbl while ICE BRENT futures for August were up 65 cents/bbl to $89.88/bbl, on Friday mid-day.

The naphtha crack spread versus August Brent crude futures was assessed at $19.95/tonne on Thursday, down by $3.62/tonne from last Friday.

“The (naphtha) market is in a bad-shape now, we have no idea when it will recover?” a northeast Asian refiner said.

The spread between the naphtha contracts for the first half of August and the first half of September was assessed at a contango of minus $2.00/tonne on Thursday, while the inter-month spread between the naphtha contracts for the second half of August and the second half of September was assessed at a contango of minus $2.50/tonne, according to ICIS.

“A contango market shows how weak is the prompt market situation,” a Singapore-based trader said.

“On Wednesday, we were expecting that $730/tonne [CFR Japan] should be the bottom price, but after the news of Formosa’s outage and crude falling, we can’t see the bottom at all,” a southeast Asian cracker operator said.

On 20 June, open spec Asian naphtha contract for the first half of August was assessed at $731.00-733.00/tonne CFR Japan, marginally lower from the previous day, according to ICIS.

"The slight bull run end of the last week as expected was short-lived," a South Korean trader said.

Prior to the mid-week change in the sentiment, some South Korean and southeast Asian cracker operators were out in the market seeking for spot cargoes, traders said.

South Korea’s Honam Petrochemical opened its tende on 20 June to buy term naphtha supply for July 2012 to June 2013 delivery into Yeosu and Daesan ports.

This came after a spot purchase of two 25,000 tonne cargoes of full-range naphtha by the same company for second half July arrival to Daesan at a slight discount to Japan quotes CFR late on 18 June.

Malaysia’s Titan Chemicals purchased a spot naphtha parcel of 25,000-30,000 tonnes on 20 June for second half July delivery into Pasir Gudang at a discount of $2.00-4.00/tonne based on CFR Japan quotes, sources close to the company said.

The seller for this cargo – Petrochina, has a choice to offer full range naphtha or light naphtha, they added. 

South Korea’s LG Chem bought a 25,000 tonnes of naphtha for delivery into Yeosu in the second half of July earlier this week, with a discount fetched at $3.00/tonne to Japan quotes CFR, traders said.

“There are many cargoes offered by AG (Arab Gulf) and Indian suppliers. That is weighing on sentiment,” a Singapore-based trader said.

Saudi Aramco has sold a total of 180,000 tonnes of spot naphtha for first half July loading over just these two weeks because of the leftovers from the unsold terms, a source close to the company said.

The source said that there will be more spot availability for first half of July loading.

India’s HPCL-Mittal Energy Ltd (HMEL) has re-offered its first naphtha parcel of 14,000 tonnes for 1-7 July loading for export early week, but buying interest was subdued because of the small lot size and the unknown grade specification.

Most Japanese cracker operators were uninterested to buy spot material for second half of July, while the largest spot buyer – FPCC is still absent from the market, traders said.

The uncertain restart date of FPCC’s crackers fuelled demand concerns, they added.

“Not just most buyers have now retreated to the sidelines, traders are holding back their cargoes,” another southeast Asian cracker operator said.

 “Traders are caught by the high cost base,” he added.

Open spec Asian naphtha contracts have tumbled by close to $300/tonne or 27% from the peak of 10-month high at $1,100/tonne CFR Japan in early March, ICIS data showed.

Although some cracker operators agreed that product margins on paper were no longer negative, this was only in the condition that naphtha cargoes are bought at today’s level.

“The petrochemical prices may start slipping because of softer crude and naphtha. Then, this will keep product margins in the negative region,” a cracker operator said.

Ethylene margins based on naphtha feed in northeast Asia fell by $56/tonne to $84/tonne following a hike in feedstock naphtha prices and lower ethylene values during the week ended 15 June, ICIS data showed.

Besides the poor product margins curtailing spot appetite for naphtha, the active swing to LPG as a feedstock to crackers have reduced demand, industry players said.

It remains unclear whether crackers will ramp up for July, given the volatile crude and naphtha prices.

“The situation is just bad now,” a northeast Asian cracker operator said.

($1 = €0.80)

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

By: Ong Sheau Ling
+65 6780 4359

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