Focus story by Felicia Loo
SINGAPORE (ICIS)--Asia's naphtha prices are likely to stay buoyant on receding inflows of deep-sea supply at a time of strong demand in motor fuel blending and as regional cracker operators are buying to restock their current low inventory levels, traders said on Monday.
Open-spec prices for the second half of June slipped to $964.50-967.50/tonne CFR (cost & freight) Japan on Monday, down $4.50-5.50/tonne from 9 May because of sinking petrochemical margins in northeast Asia.
The ethylene margin using naphtha feed tanked to $89/tonne during the week ended 9 May, down from $151/tonne in the previous reporting week, according to ICIS data.
The breakeven cost is typically $250/tonne for petrochemical crackers.
However, naphtha demand remains strong given high cracker operating rates, reduced stockpiles and tightening arbitrage inflows, the traders said.
"The [naphtha] arbitrage supply is depleting and the end-users' inventories are low," said one trader.
Open-spec naphtha prices rose to $970.00-972.00/tonne CFR Japan on 9 May, the highest levels since 28 April when they were at $974.50-976.50/tonne CFR Japan, according to ICIS data.
Reflecting the bullish strength, the naphtha inter-month spread between the second half of June and second half of July contracts widened to a four-month peak of $21.00/tonne in backwardation on 9 May from $20.00/tonne on 8 May, the data showed.
At $20.00/tonne spread, the backwardation was at its strongest levels since 9 January this year when the spread stood at $27.75/tonne in backwardation.
On 9 May, the naphtha crack spread against June Brent crude futures was assessed at $154.93/tonne, compared with $138.10/tonne a week earlier on 2 May.
Such deep-sea inflows predominantly from northwest Europe, the Mediterranean, Russia and the US fell to around 1.0m tonnes in June from initial estimates of 1.1m tonnes, traders said.
The arbitrage window remained narrow at $16.50/tonne for the east-west spread, suggesting that the economics to move Western supply to the east of Suez was not much viable.
Some unplanned refinery turnarounds in the Mediterranean, along with other naphtha production issues, have prompted a scaleback on exports to Asia, the traders said.
Net-short in naphtha, Asia is susceptible to swings in supply which could easily sway prices in either direction.
Moreover, the US gulf coast is buying grade specific naphtha from northwest Europe for gasoline purpose ahead of the peak summer driving season, which will kick off in late May.
In Europe, naphtha is also being diverted to the gasoline blending pool owing to strong West African demand.
Within Asia, top gasoline and diesel importer Indonesia will be ramping up imports of the oil products ahead of the Muslim fasting month of Ramadan at the end of June. Again, such seasonal peak demand will propel a greater use of naphtha in the gasoline blending pool.
Meanwhile, with many crackers in Asia having completed maintenance, the demand for naphtha rises notwithstanding permanent cracker closures in Japan which the market had already factored in the prices, the traders said.
High cracking operating rates prevailed in the region, supporting the naphtha premiums resultantly.
Another factor underpinning the price hike was lower export availability from India amid refinery maintenance in the country. India's Bharat Petroleum Corp (BPCL) is taking off line its 190,000 bbl/day Kochi refinery this month for 25-30 days of regular maintenance.
In a sign of stronger pricing, cargoes changed hands in higher premiums as seen in a slew of tenders and spot trades recently.
Last week, Taiwan's Formosa Petrochemical Corp (FPCC) bought by tender 100,000 tonnes of naphtha for delivery to Mailiao on 8-22 June, at premiums of $16.00-17.00/tonne to Japan quotes CFR.
In its previous tender, FPCC purchased 150,000-200,000 tonnes of naphtha for delivery to Mailiao in the first half of June at a premium of $15.00-16.00/tonne to Japan quotes CFR. The premiums have widened in the latest purchase in response to tightening supply availability in Asia.
South Korea's LG Chem bought 50,000 tonnes of naphtha for delivery to Yeosu and Daesan in the first half of June at a premium of $20.00/tonne to CFR Japan quotes.
India's Mangalore Refinery and Petrochemicals Ltd (MRPL) sold by tender 50,000 tonnes of naphtha for loading from the New Mangalore port on 20-22 June, to Japanese trading firm Marubeni.The deal was sealed at a premium of $44.00/tonne to FOB (free on board) Middle East quotes.
Previously, MRPL awarded a tender offering a similar-sized naphtha cargo to Japanese trading company Itochu for loading in mid-May, at a premium to Middle East FOB quotes of $41.00/tonne.
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