Asia naphtha may slide down on rising LPG usage in crackers

Focus story by Felicia Loo

SINGAPORE (ICIS)–Asia’s naphtha prices may fall on increasing ratio of cheaper liquefied petroleum (LPG) in the feedstock mix of regional crackers, traders said on Friday.

At midday, open-spec first-half September naphtha fell by $5.00-6.00/tonne to $966.00-969.00/tonne CFR Japan, partly in response to overnight declines in crude futures.

At the close of trade on 24 July, the first-half September/first-half August naphtha spread narrowed by 50 cents/tonne from 23 July to $13.50/tonne in backwardation, ICIS data showed.

Meanwhile, the naphtha crack spread weakened to $163.53/tonne versus ICE Brent crude futures from $169.95/tonne over the same period.

“LPG is much cheaper now so crackers are making a [partial] switch [in feed],” said one trader.

Freight costs in LPG have now become more affordable, boosting its competitiveness against naphtha, the traders said.

In South Korea, Japan and Taiwan, cracker operators replace naphtha with LPG for up to 5-15% of the total required feedstock. In southeast Asia, cracker operators can use more than 20% of LPG in place of naphtha, in the feedstock mix.

Taiwan’s Formosa Petrochemical Corp (FPCC) has bought LPG at a discount in the high-$50/tonne levels to market quotes, traders said.

The company’s impending 40-45 days of maintenance at its 1.2m tonne/year cracker from mid-August has been weighing on the naphtha market as this will translate to lower consumption of the typical feedstock for petrochemical production.

FPCC also runs a 1.03m tonne/year No 2 cracker and a 700,000 tonne/year No 1 cracker at the site, according to ICIS data.

Supply wise, the Asian market is facing rising inflows from the western markets, traders said.

Asia has booked around 1.3m tonnes of arbitrage naphtha for arrival in August, up by some 8% from levels seen in July.

For July, the arbitrage inflows – which hail from northwest Europe, the Mediterranean, Russia and the US – were pegged at 1.2m tonnes.

Compounding the situation, India’s refiners will be exporting around 700,000 tonnes of naphtha in July, compared with 680,000-690,000 tonnes in June.

Additional reporting by Fiona Zhu

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