FocusTight supply, rising petchem demand to bolster Asia naphtha

08 January 2013 02:27  [Source: ICIS news]

By Felicia Loo Naphtha cracker

SINGAPORE (ICIS)--Asia’s intermonth naphtha spread is expected to firm on the back of tightening supply and rising Chinese demand for the petrochemical feedstock ahead of the Lunar New Year in February, traders said on Tuesday.

The bullish sentiment was fuelled by higher cracker operating rates in northeast Asia, sparking higher demand for naphtha, they added.

“The market looks supported. There will also be refinery turnarounds in the Middle East in February,” a trader said, referring to lower flows from that region to Asia.

The naphtha spread between the second half of February and the second half of March contracts widened by $0.50 (€0.38) from 4 January to $16.50/tonne in backwardation on 7 January, ICIS data showed.

The naphtha crack spread against February Brent futures firmed to $129.75/tonne on 7 January from $123.70/tonne on 4 January, the data indicated.

Open-spec second-half February contract rose by $5.50-6.50/tonne from 7 January to $966.00-969.00/tonne CFR (cost & freight) Japan on the morning of 8 January, because of firm fundamentals.

Meanwhile, the ethylene margins (naphtha feed) in northeast Asia were at $69.00/tonne in the week ended 4 January, up by $46.00/tonne from the week ended 28 December, according to ICIS weekly margin report.

China’s polyethylene (PE) import prices rose in the week ended 4 January, ICIS data showed. Low density polyethylene (LDPE) prices rose by $10.00/tonne at the high end of the range to $1,325.00-1,400.00/tonne CFR China and linear low density polyethylene (LLDPE) prices were up by $15.00-40.00/tonne at $1,400.00-1,445.00/tonne CFR China.

There was firm buying interest for PE, because of concerns that plant shutdowns in the Middle East – both planned and unplanned – may tighten supply in Asia, market participants said.

United Arab Emirates’ Borouge has shut its 540,000 tonne/year PE plant in Ruwais for scheduled maintenance. Saudi Arabia’s Petro Rabigh shut its 600,000 tonne/year LLDPE plant and 300,000 tonne/year high density polyethylene (HDPE) plant in Rabigh on 29 December after a power outage.

The short-term market outlook is positive, as some PP importers in China and southeast Asia are expected to book cargoes for prompt arrival, before the key China market closes for the Lunar New Year holiday on 10-15 February.

Taiwan’s Formosa Petrochemical Corp (FPCC) bought 100,000-150,000 tonnes of spot naphtha for delivery to Mailiao in the first half of February, because of strong upstream demand. The deals for the cargoes were done at a premium of $12.00-13.00/tonne to Japan quotes CFR.

FPCC raised the operating rates for its three naphtha crackers in Mailiao to 95% capacity in January. FPCC operates a 700,000 tonne/year No 1 cracker, a 1.03m tonne/year No 2 cracker and a 1.2m tonne/year No 3 cracker in Mailiao. All three plants were operating at 85% capacity in December 2012.

Joining the bandwagon, South Korea’s Yeochun NCC (YNCC) increased the operating rates at its three naphtha crackers in Yeosu to 100% capacity in January from 90% in December, because of healthy demand from the local derivative PE sector. YNCC’s three crackers have a combined nameplate ethylene capacity of 1.9m tonnes/year.

South Korea's Samsung Total is operating its 1m tonne/year cracker in Daesan at 100% capacity in January, stable from December’s run rates.

The premiums remained firm in response to tightening supply, traders said.

India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) sold by tender a 35,000 tonne naphtha cargo to Japan’s Mitsubishi Corp at a premium of around $43/tonne to Middle East quotes FOB (free on board). The cargo is scheduled for loading from the New Mangalore port on 8-10 February.

Meanwhile, naphtha supply in Asia is tightening, because of lower deep-sea volumes from Europe, tighter flows from the Middle East and a reduction in Indian exports, traders said.

India is expected to export 800,000 tonnes of naphtha in January, down by around 11% from the exports made in December, because of refinery maintenance. Indian refiners exported an estimated 900,000 tonnes of naphtha in December.

($1 = €0.76)

Additional reporting by Chow Bee Lin

By: Felicia Loo

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