Price and market trends: Asia’s naphtha rally to persist on supply squeeze, firm demand

15 February 2013 09:43  [Source: ICB]

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 8 February.

The open-spec second-half March contract retreated at $1,034-1,037/tonne (€776-778/tonne) CFR (cost & freight) Japan on 8 February because of overnight losses in US crude futures.

Asia NaphthaThe naphtha values settled at $1,035.50-1,037.50/tonne CFR Japan on 7 February - 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 7 February from $33.00/tonne on 6 February, 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 7 February.

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.

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.

By: Felicia Loo

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