Price and market trends: Asia naphtha may fall on weak plastics demand, rising supply

29 November 2012 18:47  [Source: ICB]

Weak downstream demand overshadows prospects of polyethylene re-stocking in China ahead of the Lunar New Year

Asia's open-spec naphtha prices could face downward pressure from persistently weak petrochemical demand at a time of rising deep-sea supply, traders say.

The first-half January naphtha contract was at $943.50-946.50/tonne (€735.93-738.27/tonne) CFR (cost & freight) Japan on 22 November, down by $1.50-2.50/tonne from the previous day, shrugging off higher crude futures, ICIS data shows.

The intermonth spread between the first half of January contract and the first half of February contracts weakened to $14.50/tonne in backwardation from $19.00/tonne in backwardation in the previous week.

The spread is now at the lowest since 16 October, when the intermonth spread was at $13.50/tonne in backwardation.

"The rising supply from Europe and the US in December is pressuring down prices," said a trader.

An estimated arbitrage volume of 900,000 tonnes is expected to arrive in Asia next month, traders said.

The naphtha crack spread versus January Brent crude futures declined to $120.28/tonne, compared to $137.13/tonne in the previous week.

Reflecting the market doldrums, the premiums transacted in the week were getting softer, traders said.

The current weak downstream demand is overshadowing the prospects of polyethylene (PE) re-stocking in China ahead of the Lunar New Year, traders said. The Lunar New Year holiday will take place on 9-15 February 2013 in China.

Ethylene prices fell by $10-20/tonne to $1,200-1,230/tonne CFR NE (northeast) Asia on 21 November because of limited demand outlets, according to ICIS data.

Meanwhile, South Korea's Yeochun NCC (YNCC) is considering cutting operating rates at all its three naphtha crackers in Yeosu by a minimum of 10% in December, because of poor derivative polyethylene (PE) margins, a company official said.

YNCC's three crackers at the site have ethylene capacities of 857,000 tonnes/year; 578,000 tonnes/year, and; 465,000 tonnes/year. All three crackers are currently operating at 100% capacity, the official said.

Japan's Showa Denko has been running its 695,000 tonne/year naphtha cracker at Oita at 85% of capacity since early November because of the weak domestic derivative market, a company official said. There is a possibility for the run rates to be reduced to below 85% in December, he added.

"It is a tough market - downstream wise, demand is really weak," said a trader.

Author: Felicia Loo and Ong Sheau Ling

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