FocusAsia’s naphtha may face downward spiral on bloated supply

03 May 2013 07:11  [Source: ICIS news]

By Felicia Loo

About 1m tonne of Europe naphtha is heading to AsiaSINGAPORE (ICIS)--Asia’s naphtha prices may be undermined on the back of bloated supply and weakening plastics demand, traders said on Friday.

The second-half June naphtha prices were assessed lower at $825.50-827.50/tonne (€636.63-637.18/tonne) CFR (cost & freight) Japan on 2 May but they rebounded to $842-845/tonne CFR Japan on Friday morning trading in tandem with global crude oil futures, according to ICIS data.

The naphtha crack spread against June Brent crude futures narrowed to $73.35/tonne on 2 May, down compared with $85.70/tonne in the previous trading session, the data indicated. Meanwhile, the naphtha backwardation weakened to $12/tonne, it showed.

“The naphtha market is getting bearish. There are a lot of arbitrage cargoes coming in. The Asian refineries are returning from [active] maintenance, while the chemical products prices are not so good,” said one trader.

Asia’s ethylene prices closed at $1,170-1,190/tonne CFR NE (northeast) Asia on 2 May, down sharply from $1,280-1,300/tonne CFR NE Asia four weeks ago, based on ICIS data.

Northeast Asian ethylene margins using naphtha feedstock fell by $99/tonne to $113/tonne in the week ended 26 April, according to ICIS weekly margin report.

Around 1m tonnes of deep-sea naphtha from Europe is expected to head to Asia in May, for delivery in June, traders said. Most of the naphtha volumes are heading from the Mediterranean to Asia.

A favourable east-west spread of $28/tonne between northwest Europe to Asia earlier in the week had led to vessels being booked from the region to Asia.

Meanwhile, the arbitrage from the Mediterranean to Asia is still open, said one source. However, the deep-sea volumes were too much for Asia where the demand outlets are limited amid weakening petrochemical demand, traders said.

Around 600,000 tonnes/month of naphtha move from Europe to Asia on a regular basis, and any volumes above that volume signals a flooding of deep-sea material in Asia.

Compounding the situation, India’s refiners are raising their naphtha exports to an estimated 700,000-800,000 tonnes in May, as compared to shipments of 650,000-700,000 tonnes in April.

Indian refiners are likely to be operating their plants at high rates amid less refinery maintenance scheduled this month. The end of active refinery maintenance in India supported a higher volume of Indian naphtha exports, traders said.

“Most refinery turnaround [in India] has finished, so the exports are likely to have recovered,” one trader said.

In addition, the gasoline blending demand for naphtha remains weak given ample stockpiles of the motor fuel, traders said. The naphtha spot premiums fell as a result amid such dismal market fundamentals.

South Korea’s Lotte Chemical Corp has bought 25,000 tonnes of spot naphtha supply for delivery to Yeosu in the first half of June, at a premium of $7.50/tonne to Japan quotes CFR.

In its previous spot purchase, Lotte acquired 50,000 tonnes of naphtha for delivery to Daesan in the second half of May, at a higher premium of around $17.50/tonne to Japan quotes CFR.

Taiwan’s Formosa Petrochemical Corp (FPCC) has bought by tender 30,000-60,000 tonnes of spot naphtha supply for delivery to Mailiao in the first half of June.

The supplies fetched a premium of below $10/tonne to Japan quotes CFR. FPCC previously bought by tender around 100,000 tonnes of spot naphtha supply for delivery to Mailiao in the first half of April, at a premium in the low-$20s/tonne to Japan quotes CFR.

The company shunned spot naphtha buying for several weeks subsequently because eroded margins then had led to cracker run cuts.

Indian state-owned refiner Oil and Natural Gas Corp (ONGC) has sold by tender a 35,000 tonne naphtha cargo to Japanese firm Idemitsu for loading from Hazira on 17-18 May.

The deal for the cargo was done at a premium of $34.50/tonne (€26.22/tonne) to Middle East quotes FOB (free on board).

ONGC previously sold by tender a 35,000 tonne naphtha cargo to trading firm Vitol for loading from Hazira on 5-6 May. The deal for the cargo was done at a premium of $39.38/tonne to Middle East quotes FOB.

($1 = €0.77)

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

By: Felicia Loo

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