Asia naphtha breathes hard on oversupply, poor petchem demand

Focus story by Felicia Loo

SINGAPORE (ICIS)–Asia’s naphtha market is fraught with challenges amid slowing demand on cracker turnarounds and a heavy influx of deep-sea cargoes, traders said on Thursday.

Prices collapsed in the middle of the week, before picking up at midday on 4 September, in tandem with hefty crude gains overnight.

Open-spec second-half October naphtha rebounded by $11.00-12.00/tonne to $898.25-901.25/tonne CFR (cost and freight) Japan, ICIS data showed.

However, belying the gains in prices was a market awash in supply and afflicted with poor demand, the traders said.

“The naphtha market is very bad. It has collapsed,” said one trader.

Spot buying has been tepid recently owing to surplus petrochemical inventories, the traders said.

“Demand has weakened because of high end-users’ stockpiles,” a second trader said.

A thinning backwardation underscored the weak market fundamentals, with the spread between the second-half October and second-half November contracts narrowing to 50 cents/tonne in backwardation on 3 September versus $1.00/tonne in backwardation on 2 September, ICIS data showed.

Similarly, the spread between the first half of November and the first half of December contracts receded to 50 cents/tonne in backwardation from $1.00/tonne spread over the same period.

The naphtha crack spread versus ICE Brent October futures weakened to $132.93/tonne on 3 September from $134.95/tonne on 2 September, according to ICIS data.

Regional supply will again be augmented by deep-sea inflows, with some 1.5m tonnes of arbitrage naphtha supply from the West expected to arrive in Asia in October.

Deep-sea volumes hailing from northwest Europe, the Mediterranean, Russia and the US stood at 2.0m tonnes in September.

Moreover, with propane being more attractive price wise, crackers in Europe are less enticed to use naphtha as feedstock, freeing up supply for export to Asia.

The widening of the east-west spread to $35/tonne in September helped to support bookings of western arbitrage exports to Asia.

Meanwhile, a steady flow of naphtha exports continues from India despite reduced average monthly sales overseas from last year, owing to refinery turnarounds and increased domestic gasoline demand, the traders said.

Indian refiners are expected to export half a million tonnes of naphtha in September, unchanged from August.

Meanwhile, the regional naphtha market was further undermined by receding demand amid a series of cracker turnarounds, both routine and unplanned ones.

Philippines’ JG Summit Petrochemicals is eyeing a restart at its naphtha cracker in Batangas this month, after halting operations in late August.

The cracker, the Philippines’ first, started up in the week of 16 August. It can produce 320,000 tonnes/year of ethylene and 190,000 tonnes/year of propylene.

In Japan, Mitsui Chemicals’ 617,000 tonne/year cracker in Chiba was taken off line on Wednesday owing to a “”>mechanical issue, prompting the company to conduct the plant’s maintenance earlier than scheduled. The plant will remain down until 17 or 18 September.

Prior to the shutdown, the Chiba plant was running at full tilt and was originally slated for a routine turnaround on 12-26 October.

Japan’s Idemitsu Kosan is slated to take its 623,000 tonne/year cracker in Tokuyama off line for around six days from 10 September, while South Korea’s Yeochun NCC (YNCC) will shut its 465,000 tonne/year cracker in Yeosu from 23 September to 22 October.

In Taiwan, Formosa Petrochemical Corp’s 1.2m tonne/year cracker in Mailiao is down from mid-August to 30 September.

Meanwhile, a Singapore cracker operator will shut its unit in October for at least three months to undergo capacity expansion, market sources said.

Reflecting the bearish fundamentals, spot naphtha differentials were transacted at weaker levels.

Japan’s Mitsui has bought 25,000 tonnes of naphtha for delivery to Osaka in the first half of October, at a discount of under $1/tonne to Japan quotes CFR.

India’s Hindustan Petroleum Corp Ltd (HPCL) has sold by tender 25,000-30,000 tonnes of naphtha for loading from Visakhapatnam on 15-19 September, to trading firm Vitol. The deal for the cargo was done at a premium of $17/tonne to Middle East quotes FOB (free on board).

In a sign of weakening demand in the downstream sector, Japan’s ethylene exports in July fell 18% year on year to 55,567 tonnes, according to official data.

Its ethylene equivalent exports – the total for exported ethylene and the amount contained in exported derivative products – stood at 171,200 tonnes, down 12% from the same time a year earlier, based on the data.

Among ethylene derivatives, exports of high-density polyethylene (HDPE) decreased by 3.2% on year to 11,705 tonnes, while shipments of low-density polyethylene declined by 17% to 11,074 tonnes, the statistics showed.

South Korea’s exports of ethylene in July fell by 39% year on year to 59,168 tonnes, while its shipments of polymer derivatives were mixed according to data from the Korea International Trade Association (KITA).

Exports of polyethylene (PE) fell by 15% year on year to 101,094 tonnes in July, while its exports of low density polyethylene (LDPE) fell by 10% year on year to 31,526 tonnes in July, the data showed. The country’s propylene exports declined by 7% at 96,723 tonnes, while shipments of polypropylene (PP) were 10% higher at 101,778 tonnes, according to KITA.

A prevailing soft Chinese economy has dampened petrochemical demand.

China’s purchasing managers’ index (PMI) for August declined by 0.6 from July to 51.1 points, with its production index falling by one percentage point to 53.2% in August, the data indicated.

Ethylene margin using naphtha feed increased slightly to $406/tonne during the week ended 29 August from $401/tonne in the previous week on the back of weaker naphtha prices, according to ICIS.

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