The forward April curve for gasoline blending margins has hit $100/tonne, compared with $60/tonne for March
Asia’s naphtha prices are likely to be bolstered by improving gasoline blending economics in the region, as well as in Europe, which could potentially soak up heavy deep-sea supply that has been flowing into the region, market sources said on 21 February.
Better gasoline blending margins bolster naptha prices
Copyright: Rex Features
The naphtha inter-month spreads, which slumped to nearly four-month lows last week, saw a respite and widened to $8.00/tonne in backwardation on 20 February, compared with $7.00/tonne in backwardation on 19 February, it stated. At a backwardation of $8.00/tonne, it was the strongest in nine successive trading sessions.
The naphtha crack spread versus April Brent crude futures strengthened to $117.25/tonne on 20 February from $116.03/tonne on 19 February, ICIS data showed.
Current naphtha demand for petrochemical production is weakening owing to a heavy turnaround schedule at regional crackers starting this month.
In Japan alone, six naphtha crackers 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.
But the market may find reprieve from firming gasoline blending economics in Europe, traders said. “The reformers are all back up and the blending demand is good. The West African [gasoline] tender [would] be out soon and the [arbitrage supply/inflows] may be slightly lower,” said one Western trader.
Deep-sea naphtha volumes fixed for first-half April arrivals into Asia so far stood at 400,000-500,000 tonnes, with the cargoes coming from northwest Europe, the Mediterranean, Russia and the US. For February and March, the average monthly volume of Asia’s arbitrage naphtha supply at around 1.7m tonnes.
The prompt market is weak because of the armada of deep-sea naphtha supply coming into the region at a time of weak demand, traders said.
But this situation may change soon, as peak demand for gasoline kicks in the summer months of April/May period, they said.
The forward April curve for gasoline blending margins has hit $100/tonne, compared with $60/tonne for March. They were a far cry from January blending margins of less than $20/tonne in Europe, the traders said. “The blending margin is improving in Europe,” one trader said.
Moreover, the Asian market could draw support from potentially rising blending demand in response to Indonesia’s burgeoning gasoline import requirements ahead of its parliamentary election in April, traders said.
Indonesia – Asia’s top gasoline and diesel importer – buys 88-octane and 92-octane gasoline. The 92-octane gasoline is typically blended with naphtha to make 88-octane gasoline. The choice of what to blend with gasoline – naphtha and methyl tertiary butyl ether (MTBE)/raffinate/toluene – depends on the economics of the blending components.
Indonesia buys around 10.5m barrels of 88-octane gasoline each month. “With the election coming, there’s speculation they may buy more [gasoline] so naphtha is still required for blending,” the trader said.
However, a weakening downstream petrochemical market continues to weigh on upstream naphtha, traders said.
In the week ended 14 February, prices of northeast Asia ethylene – the building block of all petrochemical products – fell by $10-20/tonne to $1,460-1,480/tonne CFR NE Asia basis. Prices were much higher four weeks ago at $1,520-1550/tonne CFR NE Asia, ICIS data showed.
Northeast Asian ethylene prices were pressured by arbitrage supply and weak downstream conditions after the Lunar New Year holiday.
Buyers in China and Taiwan plan to restock following the festive period but their price ideas for March delivery cargoes are lower than the transacted levels for their previous February shipments.
The earlier prices are no longer workable because of a lack of improvement in the downstream conditions, according to buyers. Prices of most derivative products in China are either flat or weaker during the week.
Meanwhile, shrinking economic data from China cast a bearish hue on the downstream petrochemical markets, as plastics demand is usually pegged on the performance of the wider economy.
HSBC’s flash manufacturing purchasing managers’ index (PMI) for China was at a seven-month low of 48.3 in February, down from its final reading of 49.5 in January. A PMI reading above 50 indicates an expansion, while a reading below 50 denotes a contraction in manufacturing activities.