FocusAsia overheated naphtha falls on ebbing demand, surging supply

08 November 2013 08:19  [Source: ICIS news]

By Felicia Loo

Asia naphtha heads south on growing supply amid ebbing demandSINGAPORE (ICIS)--Asia’s naphtha market may be undermined by ebbing prompt demand, while supply is being augmented by an influx of deep-sea western supply and increased imports from the Middle East, traders said on Friday.

At midday, open-spec naphtha prices for the second-half December contract lost $10.00-11.00/tonne (€7.40-8.14/tonne) from Thursday to $910.50-913.50/tonne CFR Japan, ICIS data showed.

“The market [has been] overheated. With no more bullish news, the bears are trying to pressurise it. There are huge bears out there,” said one trader.

Profit-taking seen throughout the week caused prices to decline, traders said.

At noon, naphtha prices have come off by 3.3% from the high recorded this week at $942.50-944.50/tonne CFR Japan on 4 November, ICIS data showed.

The naphtha crack spread weakened to $137.03/tonne against December Brent crude futures on 7 November, down from $145.20/tonne on 4 November, it stated.

The backwardation between the second-half December and the second-half January contracts narrowed to $11.75/tonne from $16.00/tonne over the same period, the data showed.

“The market sentiment is weakening,” said another trader.

Dampening the market was news on increased arbitrage volumes from northwest Europe, the Mediterranean, the US and Russia, the traders said.

Asia is slated to receive 1.3m-1.5m tonnes of deep-sea naphtha flows from the western markets in December.

The volumes were higher from the November levels of 1m tonnes, owing to a widening east-west spread of late.

The western naphtha flows spiked because the naphtha blending margin into gasoline in Europe was getting worst, the traders said.

“The [naphtha-gasoline blending margin] is [the] worst since 2010. There is hardly any demand for naphtha blending [in Europe],” one trader said.

Adding to the market stress is the rising naphtha shipments from the Middle East, coming at a time of fresh concerns over eroding petrochemical margins, the traders said.

The surge in supply from the West and the Middle East is now overshadowing a reduction in Indian naphtha exports within Asia, they said.

Naphtha exports from India in November were being lowered to 650,000-700,000 tonnes, down from 750,000 tonnes previously, traders said.

Prompt demand for naphtha in Asia was subdued in the week, following a flurry of buying in the previous week.

“Crackers were coming back [on stream] so they were buying naphtha. But the prompt demand is finishing off,” said one trader.

Despite Taiwan’s Formosa Petrochemical Corp (FPCC) having bought spot naphtha supply late last week, its purchase volume of 90,000 tonnes was deemed modest as the company restarted its 1.03m tonne/year naphtha cracker in Mailiao last week after more than six weeks of turnaround.

Meanwhile, the ethylene margin in northeast Asia based on naphtha feed fell by $110/tonne  in the week 1 November to $204/tonne, according to an ICIS Weekly Margin report.

“The threatened petrochemical margin is [hitting the market],” said the trader.

($1 = €0.74)

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

By: Felicia Loo

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