FocusAsia cracking demand for butane eases on naphtha price fall

11 April 2013 07:18  [Source: ICIS news]

By Lilian Hua

Asia cracking demand for butane eases on naphtha price fallSINGAPORE (ICIS)--Demand for butane from Asian cracker operators weakened this week as prices of naphtha, which is a widely preferred feedstock for petrochemical production, are on a downtrend, industry sources said on Thursday.

Butane has lost its price advantage for cracker operators as it is now just $7-10/tonne (€5-8/tonne) cheaper than naphtha, against the acceptable price gap of at least $50/tonne, they said.

On 10 April, butane prices for the first half of May were at $882-887/tonne, meanwhile naphtha price were assessed at $892-894/tonne CFR (cost and freight) Japan.

Last week, naphtha prices shed $47.5/tonne, tracking losses in the crude market, while butane pries increased $14/tonne over the same period.

On Wednesday morning, open-spec second-half May naphtha contract were at $886-889/tonne CFR Japan, down $5-6/tonne from Tuesday, according to ICIS.

For butane to be economically viable for Asia's cracker operators, it must be priced at least $50/tonne lower than naphtha, industry sources said.

Asia imports its butane requirements from the Middle East.

Demand for butane for cracking purposes gained strong momentum in February to March – when naphtha prices were piling up gains while butane prices were heading downhill – whereas it was almost nil from September 2012 to January 2013, they said.

This month, however, buying interest from northeast Asian importers is waning, with some buyers in South Korea suspending butane procurement, market sources said.

“Only Lotte Chemical has bought a small volume, [while] others did not show much interest so far,” a South Korean importer said.

In Japan, some cracker operators with integrated petrochemical plants can still take butane even if the price gap to naphtha has narrowed to $30/tonne but not lower, an industry source said.

“Japanese crackers are still using butane as feedstock, but the quantity is very limited,” a major Japanese LPG supplier said.

“For May delivery, total consumption of butane for crackers [in Japan] is expected to be 50,000. It is getting lower as the price gap between butane and naphtha is getting narrower,” the supplier said.

The country’s butane imports for April delivery were estimated at a minimum of 80,000 tonnes, market source said.

“And, basically petrochemical companies want to crack naphtha instead of butane, because [the] current driver for cracking margin is coming from aromatics,” the Japanese supplier said.

Cracking butane can only produce olefins, while cracking naphtha can produce olefins and aromatics products.

Some petrochemical producers are considering switching to other feedstock that offer better cost advantage.

“We are thinking about buying propane,” a Taiwanese importer said, adding that companies which can process propane in their crackers would prefer using it as a lower-priced alternative.

“It is not necessary to purchase butane since butane prices are too high,” the importer said.

Weaker cracking demand, if it persists, may drive down butane prices in the near term market sources said.

Prices are currently being supported by firm demand from residential and industrial end-users.

“Spot demand for equal ratio [propane and butane] is still strong,” a market source said.

($1 = €0.77)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Lilian Hua

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