FocusAsia naphtha hits 10-week high on strong physical demand

20 July 2012 10:54  [Source: ICIS news]

By Ong Sheau Ling

SINGAPORE (ICIS)--Spot naphtha prices in Asia hit a 10-week high on Friday, buoyed by strong physical demand for August as regional crackers ramp up production, while refinery outages in Japan and lower export volumes from India shaved supply, market sources said.

At the close of trade on Friday, the first-half September naphtha contracts were assessed at $890.00-892.00/tonne (€720.90-722.52/tonne) CFR (cost and freight) Japan, up by $47.00/tonne from last week, according to ICIS.

Market sentiment is bullish as premiums on tenders and spot August purchases are on the rise, traders said.

South Korean cracker operators settled purchases at premiums that were 33-56% higher than last week. Indian refiners also closed tenders at higher premiums, up 7-18% from the previous week.

“Higher run rates at crackers will mean more demand for naphtha,” a Singapore-based trader said.

Among the Asian cracker operators that bought spot cargoes this week are South Korea’s Honam Petrochemical and LG Chem, Japan’s Mitsui Chemicals and Malaysia’s Titan Chemicals.

South Korea’s Honam Petrochemical has completed its naphtha purchases for August on 19 July, when it bought two 25,000-tonne naphtha cargoes through a tender for second-half August delivery. The cargoes were sold at a premium of $12.50/tonne to Japan quotes CFR – 56% higher than Honam’s previous purchase on 13 July.

India’s Oil and Natural Gas Corp (ONGC) has sold through a tender on 19 July a 35,000-tonne naphtha lot for loading from Hazira at a premium of $33.00/tonne to Middle East spot quotes on a free-on-board (FOB) basis – 18% higher than its last sales.

Apart from the regular buyers, industry players are expecting Japan to import some spot quantities because of the recent outages at JX Nippon Oil’s Mizushima B refinery and Idemitsu Kosan’s crude distillation unit (CDU) in Chiba.

The affected Mizhushima-based refinery supplies naphtha feed to Mitsubishi Chemicals and Asahi Kasei’s crackers, while the affected Chiba-based refinery supplies feed to its downstream cracker, to Mitsui Chemical’s cracker to a small extent, traders said.

Major regional naphtha exporter Reliance Industries Ltd (RIL), meanwhile, has been staying off the market this month, further reducing availability of the spot material in Asia, traders said.

“Healthy [naphtha crack] spread and good product margins are supporting the [naphtha] prices,” a South Korean trader said.

For the week ended 13 July, ethylene margins were assessed at $226/tonne, up $15/tonne from the previous week, according to ICIS.

On 20 July, the naphtha crack spread versus September Brent crude futures was at $88.73/bbl, up slightly from the previous day. The spread was off the two-month high of $93.43/bbl that was hit on 18 July, but a marked improvement from a three-and-a-half year-low of $3.27/bbl recorded on 13 July, according to ICIS.  

The widening of the inter-month spread is also a consequence of the bullish market.

The inter-month spread between the first-half September and first-half October contracts was assessed at $11.50/tonne – a 10-week high – on Friday, according to ICIS.

The speed and magnitude of the price increase, however, are worrying regional cracker operators and traders.

Prices have jumped $193.50/tonne or 28% from its 20-month low at $697.50/tonne CFR Japan on 22 June to reach $891.00/tonne CFR Japan on 20 July, ICIS data showed.

Lacklustre petrochemical demand from Asia’s largest consumer – China – may possibly lead to a narrowing of product margins in the near term, as exhibited by the slowdown in price gains in downstream olefins.

On 20 July close, spot ethylene prices were $10/tonne higher week on week at $1,070-1,090/tonne CFR NE (northeast) Asia, while butadiene (BD) prices held steady at $2,400-2, 500/tonne CFR NE Asia, according to ICIS.

The third quarter is expected to see limited spot purchases from Taiwan’s Formosa Petrochemical Corp (FPCC) – the largest naphtha buyer in Asia – according to market sources.

FPCC has enough naphtha stocks to last up to September, and is heard to be buying liquefied petroleum gas (LPG), an alternative and cheaper feedstock to naphtha.

Another Taiwanese producer CPC is likely to skip spot purchases in the current quarter as it has ample supply, market sources said.

 Come August, the region’s naphtha supply will be boosted by about 590,000 tonnes of European arbitrage cargoes that will likely weigh on prices.

“The price upside may only last for a few more weeks, on the condition that energy values stay strong,” another Singapore trader 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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