Price and market trends: Asia cracking demand for butane eases on naphtha price fall

19 April 2013 09:23  [Source: ICB]

Naphtha prices shed $47.50/tonne, tracking losses in the crude market, while butane prices increased $14/tonne

Demand for butane from Asian cracker operators has weakened as the price of naphtha, which is a widely preferred feedstock for petrochemical production, is on a downtrend, industry sources said on 11 April.

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, while naphtha prices were assessed at $892-894/tonne CFR (cost and freight) Japan.

The week before, naphtha prices shed $47.50/tonne, tracking losses in the crude market, while butane prices increased $14/tonne over the same period.

On 10 April, open-spec second-half May naphtha contracts were at $886-889/tonne CFR Japan, down $5-6/tonne from 9 April, according to ICIS. For butane to be economically viable for Asia's cracker operators, it must be at least $50/tonne lower than naphtha, 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 headed 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, sources said.

"Only Lotte Chemical has bought a small volume; 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 tonnes. It is getting lower as the price gap between butane and naphtha is getting narrower."

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

"Basically, petrochemical companies want to crack naphtha instead of butane, because [the] current driver for cracking margins 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 feedstocks that offer better cost advantages.

"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 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.

By: Lilian Hua

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