FocusAsia’s naphtha rally to persist on supply squeeze, firm demand

08 February 2013 03:00  [Source: ICIS news]

By Felicia Loo

Naphtha cargoes to Asia from the west have declinedSINGAPORE (ICIS)--Asia’s naphtha prices are likely to stay robust even after the Lunar New Year having soared to an almost 10-month peak, on the back of tightening supply in the region and strong petrochemical demand, traders said on Friday.

Open-spec second-half March contract retreated at $1,034-1,037/tonne (€776-778/tonne) CFR (cost & freight) Japan on Friday morning because of overnight losses in US crude futures.

The naphtha values settled at $1,035.50-1,037.50/tonne CFR Japan on Thursday – the highest levels since 13 April 2012 when naphtha prices closed at $1,067.50-1,069.50/tonne CFR Japan, according to ICIS data.

“Spot supply is very tight. You can’t find cargoes from the west from the second half of March to early April,” a trader said.

In response to the extremely low supply situation, the spread between the second half of March and the second half of April strengthened to a severely steep backwardation of $37.00/tonne on Thursday from $33.00/tonne on Wednesday, ICIS data showed.

Earlier in the week, the backwardation stood at $23.50/tonne, it indicated.

The naphtha crack spread widened to a near 10-month high of $156.68/tonne against March Brent crude futures on Thursday, the data showed.

Naphtha supply is tight in Asia because of limited flows from northwest Europe and the Mediterranean coupled with low exports from Indian refiners and plant maintenance in the Middle East, traders said.

But, on the other hand, demand is bullish and will remain strong following the Lunar New Year festivities on 9-15 February, they added.

Higher cracker run rates in Japan have bolstered the usage of naphtha feedstock, traders said.

“Japanese crackers are running about 90%. A weaker yen also makes petrochemical exports more competitive,” said a trader.

Japanese chemical producer Maruzen Petrochemical may keep close to 90% operating rates at its 520,000 tonne/year naphtha cracker at Chiba in March, the same as in February and January, rising from around 85% in December, a company source said.

Higher ethylene prices over the past four weeks also underpinned the strong cracker runs in Japan, traders said.

Asia’s ethylene prices rose to $1,380-1,410/tonne CFR NE (northeast) Asia on 7 February, up from $1,340-1,360/tonne CFR NE Asia four weeks ago, ICIS data showed.

Meanwhile, the naphtha market drew support from bullish Chinese demand, traders said.

China imported 357,251 tonnes of naphtha in December last year, up by 60% from December 2011, customs data showed. The country’s naphtha imports, however, fell by 22% from November 2012.

China did not export any naphtha in December 2012 because of strong domestic demand.

The spot premiums fetched in the deals were much higher in the week, given such strong fundamentals.

Taiwan’s Formosa Petrochemical Corp (FPCC) bought by tender around 100,000 tonnes of spot naphtha supply for delivery to Mailiao in the second half of March, at a premium of about $24/tonne to Japan quotes CFR, traders said.

In its previous tender, FPCC bought around 150,000 tonnes of spot naphtha for delivery to Mailiao in the first half of March. The deals for the cargoes were done at a premium of $15-16/tonne to Japan quotes CFR.

Indian state-owned refiner Oil and Natural Gas Corp (ONGC) sold by tender a 35,000 tonne naphtha cargo to Daewoo for loading on 22-23 February from Mumbai. The deal for the cargo was done at a premium of $53.00/tonne to Middle East quotes FOB.

Separately ONGC sold by tender a 35,000 tonne naphtha cargo to Japanese trading firm Itochu for loading from Hazira on 21-22 February. The deal for the cargo was done at a premium of $50.51/tonne to Middle East quotes FOB.

In its previous tender, ONGC sold a 35,000 tonne naphtha cargo to Japanese trading firm Idemitsu for loading from Hazira on 9-10 February, at a premium of $43.50/tonne to Middle East quotes FOB.

($1 = €0.75)

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

By: Felicia Loo

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