FocusWeak petrochemical demand to cap Asia naphtha gains

06 July 2012 11:16  [Source: ICIS news]

By Ong Sheau Ling

SINGAPORE (ICIS)--Spot naphtha prices in Asia are likely to move sideways in the near-term given no fundamental improvement in demand from downstream petrochemical sector, market sources said on Friday.

The open-spec Asian naphtha contract for the second half of August rose to a five-week high of $825.00-827.00/tonne (€668-670/tonne) CFR (cost and freight) Japan on Friday, rising by $75.00/tonne from the previous week, according to ICIS.

The naphtha crack spread versus August Brent crude futures was also at a five-week high of $76.53/tonne, up 43% from the previous week, ICIS data showed.

“Naphtha [prices] are moving up much faster than its derivatives. This is not a good sign,” a Singapore-based trader said.

Asian naphtha prices have gained 18.4% or $128.50/tonne in two weeks’ time from a 21-month low on 22 June, according to ICIS.

“This uptrend is not sustainable since there is no improvement in physical demand heading downstream,” a South Korean cracker operator said.

There are concerns that petrochemical margins will deteriorate once again if naphtha prices continued to rise at a more brisk pace compared with those of downstream products.

On Friday, spot ethylene were quoted at $1,040-1,060/tonne CFR NE (northeast) Asia, compared with $1,000-1,050/tonne CFR NE Asia last week. Butadiene, on the other hand, was at above $2,300/tonne NE Asia on 6 July from last week’s levels of $2,200-2,300/tonne CFR NE Asia, according to ICIS.

“There is still a little stocking-up in inventories in the [petrochemical] sector,” a trader based in South Korea said.

Demand is expected to wane as working hours in the predominantly Muslim countries in Asia will be reduced from the second half of July, as the fasting month of Ramadan is observed, industry sources said.

“[Naphtha] prices have been going up steadily, partly because of the buying activity going on with the South Korean and Southeast Asian cracker operators,” another trader based in Singapore said.

India’s Oil and Natural Gas Corp (ONGC) and its unit Mangalore Refinery and Petrochemicals (MRPL) sold in total 70,000 tonnes of naphtha for second-half July loading through tenders, at higher premiums.

The cargoes fetched premiums of $22.50-28.00/tonne to Middle East spot quotes on a free-on-board (FOB) basis. ONGC and MRPL last sold their July shipments at premiums of around $14.00-19.50/tonne.

Kuwait Petroleum Corp (KPC) sold 75,000 tonnes of full-range naphtha (FRN) on 5 July at a premium of around $20.00/tonne to Middle East quotes FOB, which is double the premium it fetched in previous sales.

South Korea’s Honam Petrochemical bought a 25,000-tonne lot – its first for delivery in the second half of August to Yeosu – on 5 July at a premium of $2.00/tonne to Japan quotes CFR. A similar-sized parcel for delivery to Yeosu in the first half of August at a premium of $4.00/tonne to Japan quotes to CFR. These premiums fetched were higher than its purchases on 2 July.

On 2 July, Honam bought a total of four 25,000-tonne cargoes for first-half August delivery. Three lots, heading to Yeosu, was purchased at a premium of $2.00/tonne to Japan quotes CFR, while the fourth parcel, bound for Daesan, was bought at a premium of $1.00-1.50/tonne to Japan quotes CFR.

South Korea’s LG Chem issued a tender on 3 July to buy a 25,000-tonne cargo for first-half August delivery to Yeosu that  fetched a premium of $3.00-3.50/tonne to Japan quotes CFR – triple the premium of its last purchase.

Malaysia’s Titan Chemicals bought on 3 July 20,000-25,000 tonnes of full-range naphtha via a tender, which was priced at parity to a premium of $2.00/tonne to Japan quotes CFR. In its last purchase, cargoes were bought at a discount.

Fewer supplies from Europe in August because of lower run rates are refineries have kept supply in Asia "less abundant”, while buying sentiment recently improved, another Singapore-based trader said.

“Some crackers are ramping up. This will increase the physical demand for naphtha,” he said.

Taiwan’s Formosa Petrochemical Corp (FPCC) is currently running its 1.03m tonne/year No 2 cracker in Mailiao at 80% of capacity after restarting the unit on 30 June. Operating rates at the No 2 cracker will be raised gradually to 100%, while its 1.2m tonne/year No 3 naphtha cracker is expected to be restarted on 10 July.

But once European refineries ramp up production, and with the current influx of Middle East spot material, a supply overhang may again plague the Asian market, another Singapore-based trader said.

Qatar International Petroleum Marketing Co (Tasweeq) offered by tender late on 5 July 50,000 tonnes of full-range naphtha and 50,000 tonnes of plant condensate for second half of August delivery, which was a leftover from its unsold one-year term supplies that was offered in May.

“The key focus here is the demand. Unless demand improves, prices cannot be supported,” another South Korean cracker operator said.

“With FPCC still out of the picture, it is hard to see the firm uptrend,” another Southeast Asian cracker operator said.

Taiwan’s Formosa Petrochemical Corp (FPCC) – the largest buyer in the Asian spot naphtha market – has no intention to buy spot material for August up to the first half of September, traders said.

($1 = €0.81)

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


By: Ong Sheau Ling
+65 6780 4359



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