Asia's naphtha spread firms on tight supply, healthy demand

17 April 2014 06:22 Source:ICIS News

Focus story by Felicia Loo

Asia naphtha spread expected to remain firmSINGAPORE (ICIS)--Asia's naphtha intermonth spread is expected to remain firm owing to tightened supply of the light material as healthy demand builds up at the end of the bulk of the cracker maintenance, traders said on Thursday.

Along with reduced deep-sea western inflows, the naphtha market is highly supportive, they added.

Further bolstering sentiment is a cutback on naphtha exports from India, where a couple of major refinery maintenance are ongoing, the traders said.

"Refinery turnarounds in the region are supporting naphtha, with supply being scaled back," said one trader.

Amid such bullish factors, the naphtha spot premiums were sealed at firm double-digit levels seen in the spot deals done during the week.

The inter-month naphtha spread between the first half of June and the first half of July contracts was quoted at $17.00/tonne in backwardation at the close of trade on 16 April, compared with a backwardation of $11.00/tonne a month ago, ICIS data showed.

Open-spec naphtha prices stood at $955.25-958.25/tonne CFR (cost & freight) Japan on Thursday midday, the data indicated.

Meanwhile, the arbitrage naphtha exports from the West – namely, northwest Europe, the Mediterranean, Russia and the US – are estimated to be a million tonnes in April and around 1.1m tonnes in May, the traders said.

For March, Europe had less naphtha exports bound for the east of Suez, after having contributed to the bulk of the 1.6m-1.7m tonnes of deep-sea naphtha imports into Asia for that month, they added.

The arbitrage imports are expected to narrow in response to a strengthening gasoline/naphtha spread of more than $100/tonne in Europe, signalling that a bullish gasoline market in the West would further draw naphtha supply into the pool of blending, the traders said.

In Asia, reflecting healthy demand, South Korea's Lotte Chemical bought 50,000 tonnes of spot naphtha supply for delivery to Yeosu in the second half of May, at a premium of $16/tonne to CFR Japan quotes, they said.

Separately, Taiwan's Formosa Petrochemical Corp (FPCC) bought via tender three to six naphtha cargoes totalling 90,000-180,000 tonnes for delivery to Mailiao in the second half of May, at a premium of $10-12/tonne to Japan quotes CFR, the traders said.

FPCC's purchase was on top of an earlier buying of 80,000-90,000 tonnes of spot open spec naphtha for delivery in the first half of May to Mailiao, whereby the deals for the cargoes were done at a premium of $11-13/tonne to CFR quotes.

Downstream, southeast Asia's ethylene prices were assessed as firmer during the week ended 11 April, with prices rising by $25/tonne to $1,460-1,470/tonne CFR SE (southeast) Asia. Prices stood at $1,445-1,455/tonne CFR SE Asia four weeks ago, ICIS data showed.

The rise in southeast Asian ethylene prices came after the award of a purchase tender at higher prices amid lingering supply shortages in the region.

Ethylene supply to southeast Asia remained tight on a combination of planned and unplanned cracker shutdowns in the region, curtailed supply from the Middle East because of plant turnarounds and feedstock shortages as well as the closure of the Europe to Asia arbitrage window.

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

By Felicia Loo