01 March 2013 06:53 [Source: ICIS news]
By Felicia Loo
SINGAPORE (ICIS)--Asia’s naphtha prices are likely to drift sideways as the armada of deep-sea material arriving shortly will just help plug the region’s expected supply shortfall, traders said on Friday.
Higher-than-expected spring refinery maintenance in Asia will cause supply to tighten, they said.
The region remains structurally short on the petrochemical feedstock but there are growing signs that downstream demand may ease given a slowing Chinese economy, traders said.
By midday, Asia’s open-spec naphtha prices for the second-half April contract stood at $971.00-974.00/tonne (€737.96-740.24/tonne)CFR (cost and freight) Japan, ICIS data showed.
Prices plunged from the week’s high of $1,018-1,020/tonne CFR Japan, undermined largely by weakening crude futures, it indicated.
"Gasoline futures in the US and Europe corrected yesterday," said one trader, adding that the price losses pressured down Asian naphtha markets. Naphtha and gasoline are the light distillates out of a refined barrel of crude oil.The fall in naphtha prices was regarded as a correction, some traders said.
“Naphtha prices have been overvalued,” one trader said.
The continuous strong premiums sparked off active selling from South Korean and Indian refiners during the week, traders said.
For instance, Indian state-owned refiner Oil and Natural Gas Corp (ONGC) sold by tender 35,000 tonnes of naphtha for loading from Hazira on 17-18 March, at a premium of around $56.80/tonne to Middle East quotes FOB. The buyer was Japanese trading firm ITOCHU.
In its previous tender, ONGC sold to Chevron a 35,000-tonne naphtha cargo, for loading from Hazira on 3-4 March, at a premium of around $50.00/tonne to Middle East quotes FOB.
In the meantime, the Indian refiner will close later on Friday a tender to sell a 35,000-tonne cargo of naphtha for loading from Hazira on 27-28 March. Bids shall stay valid on the same day.
Refinery maintenance in Asia is more active this year, with Taiwan’s Formosa Petrochemical Corp (FPCC) scheduled to shut down a crude distillation unit (CDU) and a residue fluid catalytic cracker (RFCC) at its 540,000 bbl/day Mailiao refinery for maintenance on 19 March.
Its 180,000 bbl/day CDU will be down for 50 days, while the 84,000 bbl/day RFCC will remain offline until mid-June.
The premiums on naphtha trades in Asia were buoyant in response to reduced production of the petrochemical feedstock in the region, traders said.
Earlier in the week, FPCC bought by tender around 100,000 tonnes of spot naphtha supply for delivery to Mailiao in the first half of April, at a premium of $22.00-23.00/tonne to Japan quotes CFR.
Meanwhile, Asia will receive more than a million tonnes of deep-sea naphtha supply from the western markets in April, similar to the 1.3m tonnes of arbitrage naphtha inflows booked for arrivals in March.
The deep-sea inflows for both months will hail from northwest Europe, the Mediterranean, Russia, as well as the US.
But naphtha prices continue to be supported by firm Asian demand even with the strong arbitrage inflows, traders said.
However, demand may slip as Asian ethylene prices start tick lower, traders said.
Ethylene prices fell by $20/tonne at the lower end of the range to $1,400-1,430/tonne CFR NE (northeast) Asia on 28 February, according to ICIS.
The downtrend may continue since China is saddled with high inventory, while demand in major downstream polyester sector has remained weak.
China’s purchasing managers’ index (PMI) slipped to 50.1% in February, down 0.3 percentage points from January, indicating a slight slowdown in manufacturing activities, official data showed.
Additional reporting by James Dennis
($1 = €0.76)
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