Naphtha is back in fashion

A steep drop in petrochemicals demand had dragged down naphtha prices in the last two months. But low prices have stinulated demand, not only from crackers but also from fertiliser and power plants.

With naphtha below $300/tonne, some Indian fertiliser and power plants are moving away from liquefied natural gas (LNG), says this report. Imports of spot LNG in the country have fallen and two cargoes were returned last month as there was no space to unload the tankers.

Spot LNG prices are currently at around $10/mmbtu, well above the naphtha equivalent price of around $7/mmbtu.

Consultancy Purvin & Gertz expects India’s average monthly naphtha surplus to decline next year to 245,000 tonnes from 448,000 tonnes during September-November 2008.

And another media report estimates that India’s naphtha consumption rose by 2.3% (0.79 m tonnes) in November as against the same month last year. The cumulative growth for April-November was 0.7% (5.8m tonnes). In comparison, LNG sales in November declined by almost 15% to 0.6m tonnes.

In 2007-08, local naphtha sales had fallen by around 15% 8.8m tonnes, largely on account of replacement by LNG the consumption of which grew by 28.9%.

But is this is the start of a long term trend? I doubt it. LNG prices are likely to keep falling match that of crude oil. And higher naphtha demand will only push up prices making in once again uncompetitive in the power and fertiliser sector. In the longer run, crude oil prices are expected to rise once the global economy recovers. This would further support higher naphtha prices.

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