FocusAsia naphtha faces pressure from deep-sea supply, poor margins

05 April 2013 03:40  [Source: ICIS news]

By Felicia Loo

SINGAPORE (ICIS)--Asia’s naphtha prices will continue to face downward pressure from abundant deep-sea supply and eroded petrochemical margins, traders said on Friday. Europe naphtha heads east

Open-spec second-half May contract slumped to an eight-month low in intra-day trading on Thursday. It fell by $5.50-6.50/tonne (€4.23-5.00/tonne) from the close of trade on 4 April to $889.50-892.50/tonne CFR (cost & freight) Japan on 5 April, ICIS data showed.

Asia is expected to receive 750,000 tonnes of arbitrage naphtha in May from northwest Europe, the Mediterranean, Russia and the US, traders said.

“The western crack is bad,” one trader said, adding that more naphtha cargoes will be sent to Asia.

The volumes to Asia are expected to climb further, given a weak European market where petrochemical demand is on a decline, the traders added.

The May volumes would easily match the volume of just over 1m tonnes in April, traders said.

“The [Asian naphtha] market is not short. Naphtha [prices] will remain weak,” said one trader in Singapore.

Falling global oil futures have further undermined the Asian naphtha market, because of the recent downbeat US economic data and high crude stock levels in the US.

Concerns over the health of the Chinese economy and the country’s petrochemical demand also weighed on the market. Although the final HSBC purchasing managers' index (PMI) for China rose to 51.6 in March, which was up from February’s 50.4, it was marginally lower than its flash PMI for China at 51.7. A PMI reading at above 50 indicates expansion, whereas a reading below 50 means contraction.

Meanwhile, northeast Asian ethylene margins – which are based on naphtha feedstock – sank by $48.00/tonne in the week ended 29 March to $14.00/tonne, because of a 2.4% increase in naphtha costs during that period, according to an ICIS margin report.

The spot naphtha premiums are softening in response to the weak market conditions, as evident in the recent tenders.

India’s Bharat Petroleum Corp Ltd (BPCL) sold by tender a 35,000 tonne naphtha cargo to Japanese company Marubeni for loading from Kochi between 30 April and 3 May. The deal for the cargo was done at a premium of $50-51/tonne to Middle East quotes FOB (free on board) quotes. 

In its last tender, BPCL sold a 35,000 tonne naphtha cargo to trading firm Vitol for loading from Kochi on 9-14 April at a premium of $56/tonne to Middle East quotes FOB.

The Asian naphtha crack spread tumbled to $91.05/tonne versus Brent crude futures on Thursday, from $118.73/tonne on 28 March, ICIS data indicated.

The intermonth naphtha spread between the second-half May and second-half June contracts narrowed to $16.00/tonne in backwardation from $19.00/tonne over the same period, the data showed.

($1 = €0.77)

By: Felicia Loo

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