OUTLOOK ’14: Asia’s naphtha supply to rise, demand to stay firm

By Felicia Loo

SINGAPORE (ICIS)–Asia’s naphtha market is likely to be mired in rising supply next year, with regular, ample flows of cargoes from the West and the start-up of a few new splitters adding further downward pressure, traders said.

So far, around 9m tonnes/year of annual cracking capacity will be taken off line in 2014, predominantly in the March-April period, according to an ICIS survey. This is lower, compared with 15.8m tonnes/year of cracking capacity that was being shut during 2013, ICIS data showed.

A lower number of crackers undergoing maintenance will help boost demand for the petrochemical feedstock naphtha next year and absorb the rising deep-sea inflows from Europe, the Mediterranean, Russia and the US.

“Without refineries cutting excess volumes, there is more and more supply from the US and Europe,” said a veteran trader.

For January alone, Asia is expected to receive a voluminous arbitrage supply of 1.5m tonnes, according to traders.

The availability of light naphtha will increase owing to new splitter start-ups in northeast Asia by mid-2014, the traders said.

Meanwhile, exports from Indian refiners are expected to increase as well.

India’s Numaligarh Refinery Ltd (NRL) is looking at selling the naphtha output from its newly commissioned splitter to the spot market for the time being, a company official said on 27 November. This is because its prospective captive user has been experiencing delays in its project start-up.

NRL spent $14m (€10.2m) to build the splitter that converts naphtha generated in the crude distillation unit (CDU) and hydrocracker unit (HCU) at its refinery into paraffin-rich material suitable for petrochemical production, the official said.

The splitter in Assam province can produce 160,000 tonnes/year of petrochemical-grade naphtha and was commissioned in the week ended 27 November, the source added.

NRL’s naphtha production is supposed to fulfil the feedstock needs of Brahmaputra Cracker and Polymers Ltd (BCPL), but it has yet to start operations at Lepetkata in northeastern Assam.

BCPL has set the trial commissioning of its project in March 2014, based on the latest schedule, said an official from India’s Ministry of Chemicals and Fertilizers.

Demand wise, naphtha requirements will remain firm in tandem with ethylene, the building block for making plastics.

Asian demand for ethylene will expand at a compounded annual growth rate (CAGR) of 6.2% in 2012-2017, Shailendra Mohite, senior engineer of corporate planning at Kuwait Petroleum International (KPI), said in late October.

This is higher than the 4.0% CAGR in North America and the 0.5% contraction in Europe over the same period, he added.

Most of the new ethylene capacity additions in China, and Asia as a whole, will be naphtha-based, although “an increasing amount will come from liquefied petroleum gas (LPG) and coal”, Mohite said.

Furthermore, signs of a stable Chinese economy will signal firm demand for naphtha next year, traders said.

The outlook on the Chinese economy is seen generally as stable, judging from its November purchasing managers’ index (PMI). China’s PMI has maintained its highest level of 51.4 since May 2012 for a second straight month in November. This indicates that the domestic manufacturing sector has remained stable-to-firm, industry sources said.

The production sub-index for November rose to 54.5 from 54.4 in October, while purchasing volumes climbed to 53.6 in November from 52.7 in October, according to data from the China Federation of Logistics & Purchasing (CFLP).

The unchanged PMI index shows that the economy would likely be stable in the future, while the increase in exports orders indicates export growth would be firm, CFLP analyst Zhang Liqun said.

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

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