FocusAsia’s naphtha spread, crack values to weaken on swelling supply

02 August 2013 03:36  [Source: ICIS news]

By Felicia Loo

Asia naphtha crack spread to decline further on supply glutSINGAPORE (ICIS)--Asia’s naphtha backwardation and crack-spread values are set to narrow further amid a burgeoning pool of supply that will outpace the current stable-to-weak demand in the region, traders said on Friday.

Open-spec second-half September prices rose by $11.50-12.50/tonne (€8.74-9.50/tonne) from Thursday to $905.50-908.50/tonne CFR (cost & freight) Japan, on Friday morning, in response to hefty overnight gains in crude futures, ICIS data showed.

However, the crude-led gains were capped by the voluminous supply in the market.

“[Naphtha] supplies are very healthy in Asia,” said one trader.

Another trader said: “There is a lot of pressure and it’s depressing.”

The inter-month spread between second-half September and second-half October contracts narrowed to $3.75/tonne in backwardation at the close of trade on Thursday, compared with a backwardation of $4.50/tonne on Wednesday, according to ICIS.

The backwardation was at the lowest levels since 22 August 2012, the data indicated.

Meanwhile, the naphtha crack spread weakened to $85.30/tonne versus September Brent crude futures on Thursday, from $91.33/tonne on Wednesday. The crack spread was at its weakest value since 1 July this year.

“There is plenty of arbitrage [naphtha] cargoes and [Middle East] availability. Some crackers bought LPG [liquefied petroleum gas] and higher inventory will make the market seem stable,” said one trader.

Asia is poised to receive 1.2m tonnes of deep-sea naphtha supply from the western markets in August, traders said. The volumes rose from July, when around 1.1m tonnes of arbitrage naphtha material landed in Asia, they added.

The arbitrage supplies hailed from northwest Europe, the Mediterranean, Russia and the US. The deep-sea volumes included at least 375,000 tonnes of European naphtha that will be transported from the Mediterranean to Japan on vessels loading in mid-August.

Around 750,000 tonnes of naphtha will be exported from India in August, with the volumes expected to circulate within Asia in the same month, traders said. The shipments for August, by and large, are the same quantity shipped out in July, they said.

In the meantime, Asia will receive around 3m tonnes of naphtha supplies from the Middle East in August, up 7% from the levels in July, according to traders.

Around 2.8m tonnes of Middle East naphtha was being shipped to Asia in July, they said.

Meanwhile, demand may ease because of cracker maintenance.

Japan’s Mitsubishi Chemical plans to shut its 489,000 tonne/year No 2 naphtha cracker in Kashima at the end of August for scheduled maintenance lasting around 50 days, a company source said on 1 August.

The petrochemical demand outlook remained mixed in tandem with the Chinese economy.

China’s official purchasing managers’ index (PMI) rose to 50.3% in July from 50.1% in the previous month, signalling that the country’s key manufacturing sector picked up amid stronger demand for its goods, official data showed on 1 August.

A PMI reading above 50% indicates expansion, while a reading below 50 denotes contraction in manufacturing activities.

A sub-index measuring new orders rose to 50.6% in July from 50.4% in June, according to the China Federation of Logistics & Purchasing (CFLP).

In contrast, HSBC’s Purchasing Managers' Index (PMI) for China fell to an 11-month low of 47.7 in July, down from 48.2 in June, signalling a deterioration of business conditions for the third straight month, the investment bank said on Thursday.

The HSBC PMI matched a preliminary figure published last week.

Additional reporting by Cuckoo James in London

($1 = €0.76)

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

By: Felicia Loo

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