FocusCorrected: Asia naphtha gains but real market recovery not yet at hand

29 June 2012 10:50  [Source: ICIS news]

Correction: In the ICIS news story headlined "Asia naphtha gains but real market recovery not yet at hand" dated 29 June 2012, please read in the second paragraph ... first half of August ... instead of ... first half of January .... A corrected story follows.

By Ong Sheau Ling

SINGAPORE (ICIS)--Recent gains made by Asian naphtha spot prices may not be sustainable despite a recent spike in spot buying activities as demand for downstream petrochemicals is fundamentally weak, market sources said on Friday.

The open-spec Asian naphtha contract for the first half of August increased by $53.50/tonne (€42.80/tonne) this week to $750.00-752.00/tonne CFR (cost and freight) Japan at the close of trade on Friday, according to ICIS.

Prices recovered following a 27% plunge from early March to a 21-month low of $697.50/tonne CFR Japan on 22 June, ICIS data showed.

The naphtha crack spread versus August Brent crude futures was assessed at a one-month high of $53.35/tonne on Friday, up from Thursday’s close of $51.23/tonne, according to ICIS data.

“Recovery [in the naphtha market] may come, but we can’t see this anytime soon,” a Singapore-based trader said.

Price gains made this week stemmed from reduced spot availability – with less cargoes originating from India and Europe expected in August – amid a pick-up in buying activities as some Asian cracker operators tapped the market to replenish inventories.

Gains in global energy values also boosted naphtha prices, traders said. At 09:18 GMT, Brent crude was up by $1.85/bbl at $93.21, while US crude gained $1.79/bbl at $79.48/bbl.

“Now, it is the usual cycle of buying,” said another Singapore-based trader.

Honam Petrochemical made three spot purchases this week. It bought two spot cargoes of 25,000 tonnes each for second-half July delivery on 25 June.

One of the cargoes that is heading to Daesan was settled at a discount of $1.50-2.00/tonne to Japan quotes CFR, while another lot bound for Yeosu was concluded at a smaller discount of $1.00/tonne.

Honam also bought on 28 June its first spot 25,000-tonne open-spec naphtha parcel for first half of August delivery to Daesan at a premium of $1.00-1.50/tonne to Japan quotes CFR.

“The higher premium fetched was in line with the price movement in the spot market, but I have no confidence that the premium will stay,” a source close to Honam said.

Another South Korean cracker operator LG Chem has purchased on 27 June by tender two 25,000-30,000 tonnes of open-spec naphtha parcels for first-half August delivery. One cargo to Daesan fetched at premium of $1.00/tonne to Japan quotes CFR, while one lot to Yeosu was settled at parity.

Apart from active buying by South Koreans, Titan Chemicals of Malaysia bought two spot cargoes this week.

Titan Chemicals bought on 25 June a 30,000-tonne light naphtha cargo at a discount of $2.65/tonne to Japan quotes CFR for second-half July delivery to Pasir Gudang, while its purchase of a 30,000-tonne full range naphtha lot on 27 June for first half of August delivery fetched a discount of $2.50/tonne to Japan quotes CFR, traders said.

Meanwhile, Japan’s Mitsui Chemicals and South Korea’s Yeochun NCC (YNCC) may also seek next week spot naphtha cargoes for delivery in the first half and/or second half of August.

With a pick-up in spot buying activity, inter-month spreads have flipped into a backwardation on 28 June, market players said.

The inter-month spread between first-half August and first-half September naphtha contracts ended the week on a $1.50/tonne backwardation, widening from $0.50/tonne on 28 June after being at parity for two successive sessions, according to ICIS.

Naphtha tenders by Indian refiners also managed to secure higher premiums, traders said.

India’s Oil and Natural Gas Corp (ONGC) sold by tender 35,000 tonnes of naphtha for loading from Hazira in western India on 14-15 July at a premium of $19.50/tonne to FOB (free on board) Middle East quote. The premium fetched was 50% higher than the company’s last sale.

“Tender’s premium has moved up perhaps due to some short covering,” a trader said, adding that many buyers have been postponing purchases as the market was so dull in the past few weeks.

“Product margins are improving with the recent price uplift in downstream ethylene and butadiene (BD) prices, but their derivatives are still underperforming,” a Japanese cracker operator said.

Offers for spot ethylene and BD surged this week on supply concerns because of an outage at the crackers operated by Formosa Petrochemical Corp (FPCC) in Mailiao, Taiwan.

On Friday, ethylene offers are at above $1,000/tonne CFR NE (northeast) Asia on Friday, while BD offers stand at $2,300/tonne CFR NE Asia, market sources said.

“The buying appetite is not that big yet with Formosa [the largest spot naphtha buyer in the region] still out of the market,” a trader based in South Korea said.

FPCC’s two crackers, with a combined ethylene capacities of 2.23m tonnes/year were shut by the power outage in Mailiao on 20 June and are expected to resume operations in the first half of next month.

“It will take some time for Formosa to return to the market to buy even though they have plans to restart the crackers in July,” another South Korean producer said.

Spot buying requirements in Asia may further ease with the 385,000 tonne/year No 4 naphtha cracker of Taiwan’s CPC Corp due to shut early next week for maintenance.

“The market is getting a little higher, but we are not bullish at all,” a trader said.

“The recovery is too fast. Fundamentals are basically unchanged except [for] better product margins in the second quarter as compared with the first quarter,” another trader said.

($1 = €0.80)

Additional reporting by Peh Soo Hwee and Helen Yan

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

By: Ong Sheau Ling
+65 6780 4359

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