FocusAsian naphtha to fall on weak plastics demand, lower cracker rates

22 March 2013 03:56  [Source: ICIS news]

By Felicia Loo and Peh Soo Hwee

SINGAPORE (ICIS)--Asia’s naphtha prices are expected to extend their losses, because of cuts in cracker run rates in northeast Asia, the weakening plastics demand and rising supply of the petrochemical feedstock, traders said on Friday. Asia naphtha market under pressure as plastics demand weakens

The spot naphtha premiums transacted in the week have already been undermined, in reflection of the market conditions, the traders added.

On Friday morning, the open-spec naphtha contract for delivery in the first half of May fell by $8.50-9.50/tonne (€6.50-7.30/tonne) to $920.00-923.00/tonne CFR (cost & freight) Japan, also partly because of softer crude futures.

“There are concerns about weaker demand from northeast Asia,” said one trader.

South Korea’s Yeochun NCC (YNCC) has slashed the operating rates across its three naphtha crackers to 90% capacity during the week, a company source told ICIS on 21 March.

The producer’s operating rates were cut in response to a blast at a polyethylene (PE) storage tank at Daelim Industrial Co’s plant at the same site in the previous week. The company is a regular supplier of ethylene to Daelim.

YNCC’s three crackers – which have a combined nameplate capacity of 1.9m tonnes/year ethylene – were being operated at full tilt before the incident occurred.

A source said operating rates at the YNCC crackers may be cut further, but a decision has not been reached yet.

Market sources said the crackers’ run rates might be reduced to 85% capacity.

Meanwhile, Taiwan’s Formosa Petrochemical Corp (FPCC) plans to cut the run rates at its three naphtha crackers at Mailiao to around 90% capacity in April, because of poor margins, a company source said on Friday.

The three crackers –  with a combined ethylene nameplate capacity of 2.93m tonnes/year – are running at 100% capacity this month, the source said.

Margins for ethylene based on naphtha feedstock have come under pressure in northeast Asia, because of sharp falls in ethylene and co-product prices.

Ethylene margins fell by $90.00/tonne to $21.00/tonne during the week ended 15 March, according to ICIS data.

Crackers in southeast Asia are expected to have lower operating rates too, further denting demand for naphtha, traders said.

Asian ethylene prices were unchanged from the previous session at $1,240.00-1,260.00/tonne CFR NE Asia on 21 March, ICIS data showed.

However, prices had fallen from $1,420.00-1,430.00/tonne CFR NE Asia four weeks ago.

In the meantime, there is no shortage of naphtha supply in Asia, traders said.

There is rising naphtha supply from the Middle East following the end of major refinery maintenance in that region.

Asia is also expected to receive 1.2-1.3m tonnes of deep-sea supply from northwest Europe, the Mediterranean, Russia and the US in April.

Weak naphtha demand in Europe will push more barrels to flow towards Asia, traders said.

For May, the western arbitrage volumes are being fixed at around 250,000 tonnes so far and the volumes are expected to climb further.

India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) has sold by tender a 35,000 tonne naphtha cargo for loading from the New Mangalore port on 24-26 April at a weaker premium. The deal for the cargo was done at a premium of $51.00/tonne to Middle East quotes FOB (free on board) and the buyer was France’s Total.

MRPL last sold by tender a 35,000 tonne naphtha cargo to Japanese firm Idemitsu for loading from the New Mangalore port on 14-16 April. The deal for the cargo was done at a premium of $64.00/tonne to Middle East FOB quotes.

South Korea’s Lotte Chemical Corp has bought 100,000 tonnes of naphtha for delivery in the first half of May at lower premiums, because of the weakening downstream petrochemical demand. The deal for the Yeosu-bound cargoes was done at a premium of $22.00/tonne to Japan CFR quotes, while the deal for the Daesan-bound cargoes was done at around a premium of $23.00/tonne to Japan CFR quotes.

Lotte last bought 100,000 tonnes of spot naphtha supply for delivery to Yeosu in the second half of April at a premium of $25.00-26.00/tonne to Japan quotes CFR. 

However, Japanese crackers have continued to run at high rates, because a weakening yen has helped make exports of petrochemical products more competitive, while stable demand from Japan will help buffer further losses in naphtha, traders said.

Japan’s JX Nippon Oil & Energy Corp plans to maintain the operating rates at its 460,000 tonne/year cracker in Kawasaki at 95% capacity in April, unchanged from its present run rates, a company source said on 19 March.

Nippon’s plant is not suffering from high inventory levels as “the consumers next to the cracker are taking ethylene supplies consistently”, the source added.

By: Felicia Loo

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