Tight supply, likely PE upside to boost Asia naphtha prices

16 November 2012 09:30  [Source: ICB]

India refinery turnarounds mean naphtha exports from the country will be reduced, putting pressure on supply

Spot open-spec naphtha values in Asia are expected to be buoyed by tight supply and a possible price uptrend in downstream polyethylene (PE) market, traders say.

The second-half December naphtha contract rose by $18-19/tonne (€14-15/tonne) from $947-950/tonne CFR (cost & freight) Japan in mid-November, according to ICIS data.


Prices in Asia could be lifted by limited supply

Copyright: Rex Features

The intermonth naphtha spread between the second half of December and the second half of January contracts was stable at a deep backwardation of $18/tonne, while the prompt naphtha crack spread stood at a strong value of $141.15/tonne on 5 November.

Generating the positive sentiment are signs of a potentially bullish downstream market - as Asian low-density polyethylene (LDPE) firm prices rose by $10/tonne at the upper end of the range to $1,245-1,330/tonne CFR China in early November.

Although LDPE prices were still down versus $1,310-1,380/tonne CFR China four weeks ago, price upside may be possible given Iran's proposed ban on polyethylene (PE) export. "That means margin may improve," said a naphtha trader.

Integrated PE margins stood at minus $22/tonne in the week ended 2 November, according to ICIS. While still in negative territory, the latest margin assessment was an improvement from the average margin of minus $48/tonne for the month of October, according to ICIS' weekly PE Asia margin report.

On 30 October, customs clearing of PE exports in Iran was halted following reports of a proposed ban on overseas shipments of 50 commodities by the Middle Eastern country. A number of Chinese traders raised their PE price offers in the belief that the ban will push up China's PE import prices, while some others have stopped offering Iranian material.

Meanwhile, linear low density polyethylene (LLDPE) futures increased by 0.2% in China on 5 November because of rising offers in the domestic physical PE market. Key local producers raised their offers for LLDPE to yuan (CNY) 10,550-10,750/tonne ($1,691-1,723/tonne) EXW (ex-works) on 5 November, up by CNY100-150/tonne from 2 November, according to Chemease, an ICIS service in China.

Some traders, however, said prices are unlikely to increase sharply even if Iran bans PE export, because downstream demand is still weak. Nonetheless, positive economic data helps provide a fillip to the market sentiment, other traders said.

China's purchasing managers' index (PMI) - a barometer for manufacturing activity - in October rose above 50 for the first time in three months, indicating expansion. The country's October PMI stood at 50.2 from 49.8 in September. China's PMI is based on a survey of 820 manufacturers in the country. A PMI reading below 50 means contraction.

In the upstream naphtha market, tighter supply continues to underpin prices as evident in the rising premiums fetched in a slew of Indian tenders. "Some refineries in India have turnarounds," said a trader, adding Indian naphtha exports will be reduced as a result.

India's Bharat Petroleum Corp Ltd (BPCL) sold by tender a 30,000-tonne naphtha cargo to Vitol at a stronger premium, reflecting strong demand from South Korea and Taiwan, and tight supply in Asia, traders said. The deal for the cargo was done at a premium of $41.00/tonne to Middle East quotes FOB (free on board) for loading from Mumbai on 10-12 November.

In its previous tender, BPCL sold two 35,000-tonne naphtha cargoes for loading from Mumbai. The deal for the cargo for loading on 15-17 November was done at a premium of $38.00-39.00/tonne to Middle East quotes FOB, while the deal for the second cargo was done at a premium of $35.00-36.00/tonne to Middle East quotes FOB for loading on 25-27 November.

India's Mangalore Refinery and Petrochemicals Ltd (MRPL) sold by tender a 35,000-tonne naphtha cargo to Total at a premium of $46.50/tonne to Middle East quotes FOB for loading at the New Mangalore port on the west coast of India on 3-5 December.

MRPL previously sold by tender a similar-sized cargo at a premium of around $43/tonne to Middle East quotes FOB for loading at the New Mangalore on 26-28 November.

The market is also anticipating Taiwan's Formosa Petrochemical Corp (FPCC) - a major naphtha buyer in Asia - to seek spot naphtha supplies for delivery to Mailiao between the second half of December and the first half of January.

FPCC's buying presence in the market is expected to support naphtha prices, traders said.

In late October, FPCC bought by tender 150,000 tonnes of spot naphtha at premiums of $15.00-16.00/tonne to Japan quotes CFR for delivery to Mailiao in the first half of December. The premiums and volumes increased from FPCC's previous spot naphtha purchase of at least 30,000 tonnes at a premium of below $10.00/tonne to Japan quotes CFR for delivery to Mailiao in the second half of November.

By: Felicia Loo

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