Price and market trends: Asia’s naphtha retreats from hikes, backwardation weakens

01 March 2013 09:08  [Source: ICB]

Asia's naphtha backwardation is likely to weaken after prices skidded from record levels, falling to below $1,000/tonne (€760/tonne) on the recovery of Indian exports and rising shipments from the Middle East, traders said on 22 February.

Weakening oil prices contributed to the fall, they added. Open-spec naphtha prices were valued at $993.50-996.50/tonne CFR (cost & freight) Japan on 22 February, down from $1,051.50-1,053.50/tonne CFR Japan on 18 February, according to ICIS data. Prices closed at $1,000-1,002/tonne CFR Japan on 21 February, the data showed.

Asia naphthaCurrently, naphtha prices are the weakest since 29 January 2012, it further indicated. "The [naphtha] time spread can't prolong for too long. It is likely to narrow to $20-30/tonne," said a trader, referring to the outlook of the backwardation.

The second-half April/second-half May spread narrowed to $28/tonne in backwardation at the close of trade on 21 February, compared with $34/tonne in the previous week, ICIS data showed.

The naphtha crack spread versus April Brent crude futures weakened to $142.03/tonne on 21 February, the lowest since 5 February when the crack spread stood at $111.06/tonne, the data indicated.

MIDDLE EAST MATERIAL

"Supply from the Middle East is rising," said one trader.

The end of refinery maintenance in the Middle East will boost naphtha exports to Asia, undermining prices to some extent, traders said.

Meanwhile, higher Indian exports are expected for the month of March, with Indian refiners estimated to export around 600,000 tonnes of naphtha in March versus 500,000 tonnes in February.

Despite a higher volume estimated for next month, the exports are lower than the monthly average of 800,000-900,000 tonnes in 2012 on the back of higher domestic demand for gasoline-powered vehicles in India.

However, capping the price losses is continued strong demand for the petrochemical feedstock in Asia, they added.

HIGH CRACKER RATES

Cracker operators in Japan, South Korea and Taiwan in particularly, are running their plants at 90% capacity and above, taking advantage of stronger downstream ethylene markets lately, traders said.

Japan's Mitsubishi Chemical has lifted its cracker operating rates to 90-95% capacity in February, up from around 90% in January.

A weaker yen has helped to make exports of petrochemical products more attractive, prompting Japanese producers to raise cracker run rates, traders said.

Asia's ethylene prices were assessed at $1,420-1,430/tonne CFR NE (northeast) Asia on 21 February, compared with $1,350-1,400/tonne CFR NE Asia four weeks before, according to ICIS.

The naphtha spot premiums are kept buoyant in response to the strong fundamentals, traders said.

"Nothing's changed. The fundamentals are still considered strong," said one trader.

Indian state-owned refiner Oil and Natural Gas Corp (ONGC) has sold by tender a 35,000-tonne naphtha cargo for loading from Hazira on 3-4 March. The buyer is Chevron and the deal for the cargo was done at around $50/tonne premium to Middle East quotes FOB (free on board).

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

DERIVATIVES SUPPORT

Meanwhile, naphtha demand will draw further support from downstream derivatives markets, they said.

China's polyethylene (PE) and polypropylene (PP) import prices will be supported by high costs of feedstock, and may even increase up to the first half of March on restocking activity.

End-users in China are low on polyolefins inventory after a week-long Lunar New Year holiday from 9-15 February, while supply from the Middle East is tight. Spot prices for linear low density PE (LLDPE) were unchanged week on week at $1,435-1,460/tonne (€1,076-1,095/tonne) CFR China, according to ICIS.


By: Felicia Loo



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