FocusAsia naphtha to move sideways on stable demand, ample supply

27 May 2013 03:47  [Source: ICIS news]

By Felicia Loo

Singapore portSINGAPORE (ICIS)--Asia’s naphtha prices are expected to move sideways as stable-to-firm demand from petrochemicals sector and gasoline blending needs are countered by huge volumes of available cargoes, traders said on Monday.

Open-spec first-half July contract rose by $6.00-7.00/tonne (€4.62-5.39/tonnefrom 23 May to $864.00-867.00/tonne CFR (cost & freight) Japan on Monday, shrugging off lower crude oil futures. Singapore oil markets were closed on Friday for a public holiday.

“The naphtha market is not bullish. It is getting support from blending demand for gasoline as naphtha is a [blending] component. Asia is still well supplied on naphtha,” said a Singapore-based trader.

Asia faces ample supply from northwest Europe, the Mediterranean, Russia and the US. The deep-sea volumes were estimated to be 1.1m-1.15m tonnes for arrival in June, according to market participants.

In addition, India is estimated to be exporting 750,000 tonnes of naphtha in June, they added.

The naphtha backwardation spreads and crack values strengthened in the week ended 24 May, underscoring the strength in the market.

The intermonth spread between the naphtha contracts for first-half July and first-half August was assessed at a backwardation of $12.50/tonne, compared with $9.25/tonne in the previous week, according to ICIS data.

The backwardation between the second-half July and second-half August was assessed at a backwardation of $10.00/tonne versus a backwardation of $8.00/tonne in the previous week, while the naphtha crack spread against the July Brent crude futures widened to $99.40/tonne from $89.03/tonne in the previous week, the data showed.

“Naphtha will be hovering at these levels,” said the trader.

There are concerns over the downstream petrochemical demand amid signs of an economic slowdown in China.

China’s manufacturing activities contracted in May, according to a preliminary purchasing managers' index (PMI), which dropped to a seven-month low of 49.6, investment bank HSBC announced on 23 May. The flash HSBC PMI for May was 0.8 points lower than the 50.4 in April and that suggested an increasing risk of an overall slowdown in the second quarter.

Weakening domestic demand, as well as soft external demand pulled down May’s preliminary PMI reading, according to Qu Hongbin, chief China economist for HSBC.

PMI is a barometer of an economy's manufacturing activities, with a reading above 50 indicating an expansion and a lower number denoting a contraction.

Japan’s imports of naphtha for ethylene production in April fell by 11% month on month to 1.07m tonnes, according to recent data from the country's Ministry of Economy, Trade and Industry (METI).

Meanwhile, northeast Asian ethylene margins based on naphtha feed rose to $179/tonne in the week ended 24 May, up from $162 in the week ended 17 May because of a 0.5% decrease in naphtha costs, according to an ICIS weekly margin report.

Nonetheless, naphtha demand remains stable in the petrochemical sector as cracker run rates are quite high, traders said.

South Korea’s Yeochun NCC (YNCC) is currently running its three naphtha crackers in Yeosu at 90% of capacity following the restart of several derivative units at the site, a company source said on 24 May.

A source from Hanwha Chemical said separately that the company had completed turnaround at its polyethylene (PE) units in first-half May but did not give details.

The producer operates two low density PE (LDPE) plants with a combined capacity of 327,000 tonnes/year, and three linear low density PE (LLDPE) plants with a total capacity of 379,000 tonnes/year at the site, according to ICIS data.

YNCC had raised the cracker operating rates from 10 May. Prior to that, run rates at the three crackers – with a combined ethylene nameplate capacity of 1.9m tonnes/year – were at 85%, as Daelim Industrial Co’s derivative PE units remained shut following an explosion at its premises.

Naphtha premiums are seen fairly stable in the meantime, as reflected in the tenders awarded last week, traders said.

Indian Oil Corp (IOC) has sold by tender a 30,000-tonne naphtha cargo for loading from Kandla on 3-5 June to Vitol, at a premium of $26.00/tonne to IOC pricing formula FOB (free on board).

In its previous tender, IOC sold a naphtha cargo of 35,000-40,000 tonnes for loading from Dahej on 30 May-1 June to Japanese firm Maruben. The deal for the cargo was done at a premium of $27.00/tonne to IOC pricing formula FOB.

($1 = €0.77)

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

By: Felicia Loo

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