By Felicia Loo
SINGAPORE (ICIS)--Asia naphtha’s crack spread values are likely to strengthen, buoyed by firm petrochemical demand in the region, traders said on Monday.
At midday, open-spec second-half January prices edged up by $4.50-5.50/tonne (€3.29-4.02/tonne) from 6 December to $986.50-989.50/tonne CFR (cost and freight) Japan, ICIS data showed.
The naphtha crack spread versus the January Brent crude futures widened to $149.08/tonne on 6 December, compared with $138.55/tonne in the previous week, it indicated.
Meanwhile, the intermonth spread between the naphtha contracts for second-half January and second-half February was assessed at a backwardation of $13.00/tonne on 6 December, compared with a backwardation of $12.25/tonne in the previous week, the data showed.
“There is strong regional demand which will help to absorb the ample supply available,” said one trader.
Reflecting strong downstream demand, China’s import prices for low density polyethylene (LDPE) hit their highest in nearly three years last week - at an average of $1,710/tonne cost-and-freight (CFR) China basis - because of reduced local production and imports.
Local production of LDPE in China had been cut on tight supply of feedstock naphtha amid scheduled turnaround at a number of domestic refineries.
Meanwhile, spot propylene prices in Asia rose to a 20-month high last week on the back of strong crude and naphtha values, with further support coming from the firm downstream polypropylene (PP) demand.
Tight propylene supply in the key China market due to lower operating rates at some plants is also bolstering domestic prices of the material.
At noon, selling ideas for propylene were at $1,500/tonne CFR NE (northeast) Asia and above, against buying ideas at $1,485-1,490/tonne CFR NE Asia.
China may seek more spot naphtha imports owing to a domestic supply shortage, as its local refineries slashed operating rates in response to a recent pipeline blast in Qingdao, traders said.
The country typically imports 300,000-350,000 tonnes of naphtha each month, the traders said. However, the volumes may climb up to 450,000 tonnes, given the recent spate of events.
Major Chinese refiner Sinopec may have to operate three refineries at reduced rates for months because of crude shortfall, after the permanent shutdown of a portion of the Dongying-Huangdao oil pipeline, where the fatal explosion on 22 November occurred.
The company initially cut the run rates at five of its refineries, including two in Qingdao. However, the two Qingdao-based refineries – a 100,000 bbl/day unit and a 200,000 bbl/day unit – will resume normal crude runs later this month as crude can be delivered to these units from other pipelines, market sources said.
The three other refineries – Sinopec Qilu’s 280,000 bbl/day unit, Sinopec Luoyang’s 160,000 bbl/day unit and Sinopec Jinan’s 160,000 bbl/day unit – that primarily process piped imported crude, are likely to see crude throughput falling by 20-30% from normal levels, market sources said.
Normal production at the three refineries was 474,000 bbl/day, which is 79% of actual capacity, industry sources said.
China’s BASF-YPC (BYC) had cut the operating rates at its 740,000 tonne/year cracker at Nanjing in Jiangsu province on lack of feedstock naphtha to 90% from 100% previously.
Meanwhile, fuelling the bullish sentiment was a set of positive economic data from China that signalled firm petrochemical and naphtha demand.
China’s manufacturing growth was at an 18-month high in November, with its purchasing managers’ index (PMI) staying for a second straight month at 51.4 – the highest reading since May 2012. This indicated that the domestic manufacturing sector has remained stable-to-firm.
($1 = €0.73)
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