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Asia naphtha may fall on weak plastics demand, rising supply

ICIS News : 22-Nov-12 04:19

By Felicia Loo and Helen Lee

Asia naphtha may fall on weak plastics demand, rising supplySINGAPORE (ICIS)--Asia’s open-spec naphtha prices could face downward pressure from persistently weak petrochemical demand at a time of rising deep-sea supply, traders said on Thursday.

The first-half January naphtha contract was at $943.50-946.50/tonne (€735.93-738.27/tonne) CFR (cost & freight) Japan on Thursday morning, down by $1.50-2.50/tonne from Wednesday, shrugging off higher crude futures, ICIS data showed.

The intermonth spread between the first half of January contract and the first half of February contracts weakened to $14.50/tonne in backwardation from $19.00/tonne in backwardation in the previous week.

The spread is now at the lowest since 16 October, when the intermonth spread was at $13.50/tonne in backwardation, according to ICIS data.

“The rising supply from Europe and the US in December is pressuring down prices,” said a trader.

An estimated arbitrage volume of 900,000 tonnes is expected to arrive in Asia next month, traders said.

The naphtha crack spread versus January Brent crude futures declined to $120.28/tonne, from $137.13/tonne in the previous week, according to ICIS data.

Reflecting the market doldrums, the premiums transacted in the week were getting softer, traders said.

South Korea’s Honam Petrochemical bought 50,000 tonnes of open-spec naphtha at a premium of around $16/tonne (€12/tonne) to Japan quotes CFR for delivery to Yeosu in the second half of December.

In its previous spot purchase, Honam bought 75,000 tonnes of open-spec naphtha for delivery to Yeosu and Daesan, at a premium of around $22/tonne to Japan quotes CFR basis.

Indian state-owned refiner Oil and Natural Gas Corp (ONGC) sold by tender a 35,000-tonne naphtha cargo to Chinese trading firm Unipec at a premium of around $38.00/tonne (€29.60/tonne) to Middle East quotes FOB (free on board). The cargo is due for loading from Hazira on 28-29 November.

In its last tender, ONGC sold a 35,000-tonne naphtha cargo for loading from Hazira to Gunvor at a premium of $47.50/tonne to Middle East quotes FOB for loading on 18-19 November.

The current weak downstream demand is overshadowing the prospects of polyethylene (PE) re-stocking in China ahead of the Lunar New Year, traders said.

The Lunar New Year holiday will take place on 9-15 February 2013 in China.

Ethylene prices fell by $10-20/tonne to $1,200-1,230/tonne CFR NE (northeast) Asia on 21 November because of limited demand outlets, according to ICIS data.

Meanwhile, S Korea’s Yeochun NCC (YNCC) is considering cutting operating rates at all its three naphtha crackers in Yeosu by a minimum of 10% in December, because of poor derivative polyethylene (PE) margins, a company official said.

YNCC’s three crackers at the site have ethylene capacities of 857,000 tonnes/year; 578,000 tonnes/year, and; 465,000 tonnes/year. All three crackers are currently operating at 100% capacity, the official said.

Japan’s Showa Denko has been running its 695,000 tonne/year naphtha cracker at Oita at 85% of capacity since early November because of the weak domestic derivative market, a company official said. There is a possibility for the run rates to be reduced to below 85% in December, he added.

“It is a tough market – downstream wise, demand is really weak,” said a trader.

($1 = €0.78)

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

By Felicia Loo and Helen Lee
+44 20 8652 3214

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