FocusAsia naphtha to fall on rising supply, weak plastics demand

21 September 2012 03:36  [Source: ICIS news]

By Felicia Loo and Chow Bee LinA supply overhang is weighing down Asian naphtha markets

SINGAPORE (ICIS)--Asia’s spot naphtha premiums are expected to drop further in response to a growing pool of supply resulting from increased deep-sea flows and Indian exports, as well as a slump in plastics demand, traders said on Friday.

The premiums concluded in spot naphtha trades and tenders in the week were already squeezed, given a gloomy Chinese economy as reflected in the country’s disappointing manufacturing data, they added.

The weak petrochemical demand continues to prevail despite the restocking activity in some market segments such as polyolefins in China. Sharp price rises in the polyolefins are not likely to happen because of weak downstream plastics demand, according to market players.

China’s output of plastics finished goods for the first half of this year rose by 10.8% on a year-on-year basis to 26.41m tonnes, a significantly lower growth rate compared with the 24.5% increase registered for the same period last year, industry sources said.

China’s plastics demand has been hit by dwindling US and European demand for Chinese exports since the financial crisis in 2008, industry sources said.

Plastics resin demand in different southeast Asian markets, such as Malaysia, Indonesia, Thailand and Vietnam, is expected to be largely unchanged from last year or to grow at a slower pace this year, in line with the slower global economic growth, industry sources said.

Open-spec naphtha prices in Asia plunged by $42.00/tonne (€32.30/tonne) from Wednesday to $914-916/tonne CFR (cost & freight) Japan on Thursday, the lowest since 7 August, according to ICIS data. The naphtha crack spread tumbled to a month’s low of $108/tonne against November Brent crude futures on Thursday, the data showed.

Meanwhile, Asia is likely to receive 250,000-300,000 tonnes of deep-sea naphtha supplies from northwest Europe and the Mediterranean between the end of October and the first half of November.

“The Western cargoes will head to Asia. Some traders are long on supply, so they are looking for demand outlets in the East,” said a trader in Singapore.

As the demand outlets in Brazil and the US Gulf are limited except for Asia at this point, Asia will be the likely destination to soak up the excess European barrels estimated to be around half a million tonnes, traders said.

In a sign of a weakening market, South Korea’s Honam Petrochemical bought two naphtha cargoes totalling 50,000 tonnes for first-half November delivery at lower premiums because of sliding demand and rising supply.

Deals for the cargoes for delivery to Daesan were done at a premium of $10.50/tonne to Japan quotes CFR. Honam previously purchased three naphtha cargoes totalling 75,000 tonnes for delivery in the second half of October, of which two cargoes for delivery to Daesan were bought at a premium of $18.50/tonne to Japan quotes CFR, while the deal for one cargo for delivery to Yeosu was done at a premium of $18.00/tonne to Japan quotes CFR.

Indian refiners are estimated to be exporting around 720,000 tonnes of naphtha in October, rebounding from 500,000-600,000 tonnes shipped out this month because of the end of planned refinery maintenance, they added.

Indian state-owned refiner Oil and Natural Gas Corp (ONGC) sold by tender 35,000 tonnes of naphtha to major oil and gas company Total, at a premium of $34/tonne to Middle East quotes FOB (free on board) for loading from Hazira on 3-4 October.

In its previous tender, ONGC sold by tender 35,000 tonnes of naphtha to Chinese trading firm Unipec at a premium of $39/tonne to Middle East quotes FOB for loading from Hazira on 23-24 September.

State-owned refiner Indian Oil sold 30,000 tonnes of naphtha to Oil Company of the Azerbaijan Republic (SOCAR) at a premium of $26-27/tonne to Middle East quotes FOB for loading from Kandla on 8-10 October.

Indian Oil previously sold by tender 35,000-40,000 tonnes of naphtha to the SOCAR at a premium of over $40/tonne to Middle East quotes FOB for loading from Dahej on 1-3 October.

India's Essar Oil sold by tender 35,000 tonnes of naphtha to trading firm Glencore at a premium of $27-28/tonne Middle East quotes FOB for loading from Vadinar on 4-6 October.

HSBC’s September flash purchasing managers’ index (PMI) for China rose to a two-month high of 47.8, indicating that the country’s manufacturing sector is still contracting, but at a slower pace. The flash PMI number for September was 0.2 points higher than August’s 47.6.

A figure above 50 indicates an expansion, while a figure below 50 represents a contraction.

Output, as measured by HSBC’s flash china manufacturing output index, fell to a 10-month low of 47 in September. This follows the August reading of 48.2.

The dismal downstream margins continue to weigh on the market, traders said.

Northeast Asian ethylene margins dropped by $5/tonne from the previous week to $22/tonne in the week ended 14 September, reflecting lower ethylene prices and higher feedstock prices, according to ICIS margin report.

Ethylene prices fell by $15/tonne to the previous week’s price of $1,325/tonne, while feedstock costs increased slightly, by 0.3%, the report showed.

($1 = €0.77)

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

By: Felicia Loo

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