FocusAsia naphtha differentials to improve on active spot buying

08 July 2013 04:33  [Source: ICIS news]

By Felicia Loo

Asia naphtha differentials to improve on active spot buyingSINGAPORE (ICIS)--Asia’s naphtha price differentials are expected to improve, buoyed by heightened spot buying from Taiwanese and South Korean cracker operators, as well as prospects of stable-to-lower deep-sea inflows, traders said on Monday.

Open-spec naphtha prices were at $904.50-907.50/tonne (€705.51-707.85/tonne) CFR (cost and freight) Japan in early trade, extending their gains from the previous week, with Brent crude oil futures trading at around $108/bbl. The last time naphtha prices topped $900/tonne CFR Japan was on 3 April this year, when the prompt contract closed at $911-913/tonne CFR Japan, ICIS data showed.

In the week ended 5 July, open-spec naphtha prices for the second-half August delivery surged by $30/tonne to $889-891/tonne CFR Japan – the highest levels since 10 April when the petrochemical and blending feedstock closed at $892-894/tonne CFR Japan, ICIS data showed.

Escalating political tensions in Egypt drove crude prices higher, particularly in the latter half of last week, consequently bolstering naphtha prices. Fuelling crude oil prices further was a halt in exports from Libya’s Es Sider terminal and an unexpected rise in US non-farm payrolls in the month of June.

The intermonth spread between second-half August and second-half September widened to $5.75/tonne in backwardation on 5 July versus $5/tonne on 4 July, while the crack spread against August Brent crude futures strengthened to $96.35/tonne on 5 July, up by 11.9% from 28 July, the data further indicated.

“No one is offering [second-half August barrels] aggressively yet,” said one trader, explaining why prices firmed.

Other traders said there were many distressed cargoes for delivery in July and the first half of August that consequently led to cargoes being sold at depressed prices.

“But lately, FPCC [Formosa Petrochemical Corp] has been buying many [naphtha] cargoes and they do not crack LPG [liquefied petroleum gas],” said one trader.

Now that demand has increased somewhat, sellers are changing their tune, traders said.

"Some traders are holding back cargoes and they resisted to sell at low premiums,” said one buyer in northeast Asia.

Taiwan’s FPCC, one of Asia’s dominant spot buyers, awarded a purchase tender for 100,000-150,000 tonnes of spot naphtha supplies, as the refiner replenished low inventory levels amid high LPG prices.

The deals for the cargoes were done at a range from a discount of 50 cents to a premium of 50 cents, and the price differentials were benchmarked against Japan quotes CFR pricing.

The price differentials improved from its previous spot purchase, when FPCC bought 150,000 tonnes of naphtha for delivery to Mailiao from the second half of July to August, at levels ranging from parity to a premium of $1/tonne to Japan quotes CFR.

The spot price differentials also increased from recent transactions in other parts of northeast Asia because the oversupply situation has eased and the emergence of active spot buying from Taiwan, traders said.

South Korea’s Lotte Chemical bought a 25,000-tonne naphtha cargo for delivery to Yeosu in the second half of August, at $4.00-5.00/tonne to Japan quotes CFR.

Previously, Lotte bought 50,000 tonnes of naphtha for delivery to Yeosu in the first half of August. The deals for the cargoes were done at a premium of $2.00/tonne to Japan quotes CFR.

Another South Korean firm, Yeochun NCC (YNCC), bought three naphtha cargoes totalling 75,000 tonnes for delivery to Yeosu in the second half of August, at a premium of $4-5/tonne to Japan quotes CFR. This compared to its earlier spot purchase, when YNCC took up 50,000 tonnes of naphtha supplies for delivery to Yeosu at a premium of $1.50/tonne to Japan quotes CFR for delivery in the second half of July.

Early last week, Taiwan’s CPC Corp bought by tender three full-range naphtha cargoes totalling 75,000 tonnes for delivery to Kaohsiung during the first 20 days in August, at a premium of $2.50-3.50/tonne to Japan quotes CFR.

Meanwhile, the western arbitrage bookings might be hampered by tighter vessel availabilities, caused by a closed arbitrage gasoil window to the West, traders said.

Asia is expected to receive around 760,000 tonnes of western deep-sea naphtha material in August, compared with almost a million tonnes booked for July arrivals.

Some market players said the arbitrage bookings could increase, but the volumes might be capped given higher prevailing freight rates. The arbitrage material hails from northwest Europe, the Mediterranean, Russia and the US typically.

In the meantime, the Asian naphtha market will continue to garner support from the regional downstream ethylene and derivatives markets.

Northeast Asian ethylene prices were stable in the week ended 5 July at $1,250-1,280/tonne CFR, but higher compared with $1,200-1,220/tonne CFR NE (northeast) Asia four weeks ago as ethylene supplies remained snug within Asia and from the Middle East, ICIS data showed.

Some market participants said there could be more spot ethylene buying interest from China because of delays in the start-up of two crackers in the country.

Wuhan Petrochemical was heard to have pushed back the start-up of its 800,000 tonne/year naphtha cracker to the end of July at the earliest, while Sichuan Petrochemical has similarly postponed its cracker start-up.

In the derivative markets, spot prices of film-grade high density polyethylene (HDPE) were stable at $1,375-1,450/tonne CFR China in the week while monoethylene glycol (MEG) prices rose $23-24/tonne to $963-974/tonne CFR China, according to ICIS.

($1 = €0.78)

Additional reporting by Peh Soo Hwee

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

By: Felicia Loo

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