Asia naphtha backwardation slumps as petchem prices fall

10 February 2014 10:03 Source:ICIS News

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By Felicia Loo

SINGAPORE (ICIS)--Asia’s open-spec naphtha backwardation tumbled to the lowest in more than three months at $7.50/tonne on Monday, triggered by weakening downstream petrochemical prices as heavy cracker turnaround sets in, traders said.

The intermonth spread between the second-half March and second-half April contracts narrowed from a backwardation of $9.50/tonne on 7 February.

At $7.50/tonne, the naphtha backwardation declined to the lowest levels since 23 October 2013, when the time spread stood at $7.25/tonne in backwardation, ICIS data showed.

The intermonth spread between the second-half March and second-half April contracts narrowed from a backwardation of $9.50/tonne on 7 February.

The second-half March naphtha contract closed at $939.75-941.75/tonne CFR (cost and freight) Japan on Monday, down by $11.25-12.25/tonne from crude-driven gains at midday, it indicated.

Meanwhile, the naphtha crack spread versus March Brent crude futures, declined to $123.25/tonne from $130.90/tonne on 7 February. The crack spread hit the weakest levels since 30 October 2013, when it closed at $122.20/tonne, ICIS data showed.

Downstream, ethylene prices in northeast (NE) Asia declined by $10/tonne at the low end of the range in the week ended 7 February to $1,470-1,500/tonne CFR NE Asia, compared with $1,520-1,560/tonne CFR Japan four weeks ago, according to ICIS.

In southeast Asia, ethylene prices fell by $20/tonne at the upper end of the range over the same period to $1,400-1,420/tonne, the data showed.

Most end-users are cautious as they are uncertain if the prices of their products can improve after the holiday period to cover their high feedstock costs, which are at levels last seen in 2008. The margins for most derivatives such as polyethylene (PE) and monoethylene glycol (MEG) are generally weak at the moment.

Most countries in southeast and northeast Asia celebrated the Lunar New Year on 31 January. For China, the holidays lasted seven days up to 6 February.

Recent declines in liquefied petroleum gas (LPG) prices also weighed on naphtha prices in Asia, as LPG is a substitute feedstock for petrochemical production.

The spate of cracker turnarounds in the region would eventually lead to lower naphtha usage. Six naphtha crackers in Japan with a total capacity of around 3.4m tonnes/year will be taken off line for maintenance between February and June, compared with two plant shutdowns in the country during the same period last year.

Asia remains awash with deep-sea naphtha supply, compounding the situation.

Additional reporting by Yeow Peilin

By Felicia Loo