FocusAsia’s naphtha backwardation to surge on tight supply

30 August 2012 08:18  [Source: ICIS news]

By Felicia Loo

SINGAPORE (ICIS)--Asia’s naphtha price backwardation is expected to widen further on the back of tighter regional supply of the petrochemical feedstock, traders said on Thursday.

Naphtha prices in Asia firmed up in tandem with the crack spread values in Europe, they added.

The light distillates market drew support from gasoline production issues in the US, where more than 700,000 bpd of refining capacity was being shut down because of the Tropical Storm Isaac, traders said.

“Fundamentally, the situation in Asia is supply-driven. Indian naphtha exports have been reduced sharply,” said one trader.

Indian refiners are estimated to slash naphtha exports to 500,000-600,000 tonnes in September, down by 29-33% from a monthly average of 700,000-900,000 tonnes, because of higher domestic demand for naphtha.

Some refinery maintenance will see a reduction in naphtha output in India, hence that will limit exports.

The Indian refiners are keen to produce more gasoline than naphtha, given strong gasoline demand and some naphtha is being diverted to the gasoline blending pool.

Asia’s naphtha backwardation widened to a 27-week high at the close on Wednesday, helped by tight supply and firm demand from South Korean cracker operators.

The intermonth spread between the first half of October and November open-spec naphtha contracts widened by 50 cents/tonne from Tuesday to a backwardation of $10.50/tonne (€8.40/tonne) at the close of trade on Wednesday, the strongest since 20 July, ICIS data showed.

The backwardation stood at $3/tonne on 21 August but has since gained strength on the back of firm fundamentals, traders said.

Open-spec naphtha prices for the first-half October contract rose by $9-10/tonne to $970.50-973.50/tonne CFR Japan on Thursday midday trade, according to ICIS data.

Downstream ethylene prices were underpinned by tight cargo availabilities, with prices assessed at $1,300-1,340/tonne CFR NE Asia on Wednesday compared with $1,130-1,170/tonne CFR NE Asia four weeks ago, ICIS data showed.

Moreover, the chances of booking ample European naphtha supplies for Asia remained slim because of a weak east-west spread.

The east-west spread, which measures the profitability of bringing European naphtha to Asia, lost 45% from early August to $8.75/tonne.  

On 3 August, the east-west spread stood at $15.87/tonne.

Amid such backdrop, the spot naphtha premiums rose in transactions that took place in the week, traders said

South Korea’s Honam Petrochemical bought two naphtha cargoes totalling 50,000 tonnes for delivery into Daesan in the first half of October, at a premium of $9.50-10/tonne to Japan quotes CFR.

Samsung Total purchased 50,000 tonnes of open-spec naphtha supply for delivery in the first half of October, after skipping spot imports for September delivery.

Rising propane prices make naphtha a more attractive option for Samsung Total. The cargoes were done at a premium of $9/tonne to Japan quotes CFR.

The premiums rose sharply from the purchases made by South Korea’s Honam Petrochemical in the second half of last week.

Honam Petrochemical had bought four naphtha cargoes totalling 100,000 tonnes for delivery into Yeosu and Daesan in the first half of October at a premium of around $2/tonne to Japan quotes CFR then.

“All tenders are going at very high premiums,” a trader said

($1 = €0.80)

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

By: Felicia Loo

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