Price and market trends: Asia naphtha spreads dwindle on ample supply, cracker shutdowns

30 August 2013 09:43  [Source: ICB]

Shutdowns by GS Caltex, JX Nippon Oil and Energy, Mitsubishi Chemical, and Formosa Petrochemical reduce Asia demand

Naphtha's price spreads and crack values in Asia are set to weaken as the regional market is awash with supply amid outages and impending turnaround at regional crackers, traders said on 21 August.


 A spate of plant turnarounds will hit demand

Copyright: Rex Features

Open-spec first-half October prices rose to $923-926/tonne (€692-695/tonne) CFR (cost & freight) Japan on 21 August, up by $8-9/tonne from the previous session as Brent crude futures closed at above $110/bbl overnight, according to ICIS.

The spread between the first half of October and the first half of November contracts narrowed to $3.50/tonne in backwardation at the close of trade on 20 August from $5.00/tonne on 19 August, the data showed.

Meanwhile, the naphtha crack spread versus October Brent crude futures tumbled to $98.43/tonne from $105.65/tonne, also in response to lower European naphtha prices that dwindled from strong levels the previous week, it indicated. "There are so many [naphtha] cargoes in the prompt market [in Asia] and there are not so many uncovered requirements," said a trader.

The premiums weakened consequently given a market facing ample cargo availability. South Korea's Lotte Chemical has bought two 25,000-tonne naphtha cargoes for delivery at lower premiums.

The deal for the second-half September cargo was done at a premium of $2.00/tonne to Japan quotes CFR pricing, while the deal for the first-half October cargo was done at a premium of $3.00/tonne to Japan quotes CFR.

Lotte previously bought a 25,000-tonne naphtha cargo for delivery in the first half of September, at Japan quotes CFR pricing plus $7.00/tonne.

Another South Korean buyer, LG Chem, has purchased 25,000 tonnes of naphtha for delivery in the second half of September, at a premium of $3.75/tonne to Japan quotes CFR pricing. This compared with its previous purchase of 50,000 tonnes of naphtha, for delivery to Daesan in the first half of September, at Japan quotes CFR pricing plus $4.00/tonne.

Meanwhile, plant maintenance issues will chip away demand in Asia at a time of high imports flows from the western markets, traders said.

South Korea's second-largest refiner, GS Caltex, plans to shut its 90,000 bbl/day naphtha splitter in Yeosu during 1-25 October for regular maintenance.

In Japan, JX Nippon Oil and Energy's 460,000 tonne/year naphtha cracker at Kawasaki, is likely to be shut for at least 10 days, and the earliest restart timing is likely to be at the end of August. The facility was shut early on 19 August because of a technical problem.

Mitsubishi Chemical, on the other hand, will conduct a 50-day turnaround at its 489,000 tonne/year naphtha cracker in Kashima from end-August. In Taiwan, Formosa Petrochemical Corp will shut its 1.03m tonne/year naphtha cracker in Mailiao from mid-September to end-October.

Additional reporting by Helen Lee

Asia's naphtha market is getting some relief from further inflows of surplus deep-sea cargoes, now that arbitrage economics to move western material eastwards are no longer viable, traders said on 23 August.

Confirmed arbitrage naphtha flows to Asia for September are seen at 1.0m-1.3m tonnes, they said, down from the initial estimate of 1.4m tonnes, including provisional bookings.

The September-arrival volumes will be largely similar to the 1.2m tonnes of material flowing into Asia for the whole of August.

"The physical [market] is getting weaker by the day. It's looking for support in the fourth quarter with Europe refinery turnarounds," said one trader.

However, the voluminous supply is more than what Asia could absorb given a spate of current and impending cracker shutdowns, traders said (see article, above).

"The East is struggling with all the oil. The September physical [naphtha cargoes] will roll into October," said another trader.

A tightening of the east-west spread suggested the closure of the arbitrage window, that brought some support to the market, which was being weighed down by excessive cargo availability, traders said.

"At least the relief now is that the arbitrage [window] is shut, so the arbitrage supply doesn't get flooded in the east," said the first trader.

The east-west spread was valued at slightly more than $12.00/tonne, traders said.

The spread previously peaked at around $22.00/tonne before sliding to $15.00-17.00/tonne, and then to $12.00-13.00/tonne over the previous week, they added.

Of concern is the weakening of spot demand as maintenance at key crackers sets in, traders said.

By: Felicia Loo

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