11 June 2013 03:19 [Source: ICIS news]
By Felicia Loo
SINGAPORE (ICIS)--Asia’s naphtha prices may weaken in response to bountiful supply of deep-sea cargoes and softer petrochemical demand as well as gasoline blending demand requirements start to taper off, traders said on Tuesday.
The second-half July open-spec naphtha contract was valued at $870.00-873.00/tonne (€652.50-654.75/tonne) CFR (cost & freight) during the morning trading on Tuesday, down by $1.00-2.00/tonne from Monday, according to ICIS data.
The second-half July and second-half August spread narrowed to almost a year-low of $5.00/tonne in backwardation and the naphtha crack spread against July Brent crude futures weakened to $91.88/tonne on Monday.
“My view is still bearish. The naphtha paper has been artificially propped up for a while, and there is too much physical supply,” said a trader based in Singapore.
It appeared that the initial strength from gasoline blending demand is soon fizzling out, as the arbitrage window to move European gasoline to the US remains closed and this was reinforced by lower gasoline prices in the US, traders said.
Naphtha is used as a blending component in making motor gasoline, besides a petrochemical feedstock for cracking.
Conventional blendstock for oxygen blending (CBOB) grade gasoline in the US Chicago market was assessed at 47.50 cents/gal over NYMEX reformulated blendstock for oxygen blending (RBOB) futures, a drop of 18.50 cents/gal in one day. This put spot prices at $3.3225-3.3250/gal.
Meanwhile, gasoline supply is expected to rise in the US, as ExxonMobil’s 238,000 bbl/day Joliet refinery in Illinois was returning to normal operations after completing a two-month plant-wide overhaul.
“US [gasoline] demand has been weak,” the trader said.
Finished motor gasoline consumption rates in the US for the week ended 31 May were at 8.822m bbl/day, a decrease of 134,000 bbl/day, or 1.5% from the previous week, according to the US Energy Information Administration (EIA) on 5 June.
For the same week, gasoline inventories dropped by 400,000 bbl to 218.8m bbl, a 0.4% week-on-week decline, the EIA said.
Analysts had predicted a gain 1.5m bbl in gasoline inventories. Imports also fell this week, contributing to the decrease in inventories by shedding 198,000 bbl/day to 514,000 bbl/day. Despite the drop in inventories, production rates increased by 116,000 bbl/day to 9.195m bbl/day.
The earlier support from gasoline blending demand was in response to increased needs from West Africa as well as tighter gasoline supply in Asia where there has been refinery shutdowns in India, traders said.
“The premium for gasoline blending nap [naphtha] is coming off,” said another trader.
In the meantime, Asia is expecting a deluge of arbitrage naphtha supply from the western markets. Around 800,000 tonnes of arbitrage naphtha from northwest Europe, the Mediterranean, Russia and the US have been booked for July arrivals.
Some of the second-half June volumes were being spilled over to deliveries in the first half of July because of a lack of strong demand outlets.
“I'm not sure if the east will need more than 700,000 tonnes arbitrage naphtha in July,” one trader said.
Northeast Asian ethylene margins based on naphtha feed fell by $41/tonne in the week ended 7 June to $121/tonne, an ICIS Weekly Margin report showed.
Downstream demand in China remains poor, with purchases largely done on a need-to basis. Northeast Asian ethylene prices were assessed unchanged from 7 June to $1,200-1,220/tonne CFR on 10 June, ICIS data showed.
However, CFR NE (northeast) Asia ethylene prices stood at $1,200-1,235/tonne four weeks ago.
($1 = €0.75)
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