Asia naphtha to slump until Nov on supply deluge, weak demand

Focus story by Felicia Loo

SINGAPORE (ICIS)–Asia’s naphtha market may remain bearish until November amid voluminous supply and shrinking demand, traders said on Friday.

Open-spec prices for the second half of October stood at $863.50-866.50/tonne CFR (cost and freight) Japan on Friday morning, down by $4.00-5.00/tonne from 11 September, according to ICIS.

At the close of trade on Thursday, prices declined to their lowest in more than a year – at $859.50-861.50/tonne CFR Japan – the weakest since 1 July 2013, ICIS data indicated.

Meanwhile, a worsening contango, whereby the front-month prices are weaker than the subsequent month, attests to the weak fundamentals of the regional naphtha market.

“The [supply] overhang and high stock levels in petrochemicals are pressuring down [the market],” said one trader.

The contango between the second half of October and the second half of November contracts slumped to a deeper spread of $2.50/tonne from $1.00/tonne a day ago, ICIS data showed.

Separately, the spread between the first half of November and the first half of October contracts slid deeper into a contango of $2.00/tonne from $1.00/tonne over the same period.

The naphtha crack spread versus ICE Brent October crude futures receded to $128.95/tonne from $132.78/tonne a day ago.

“The bearish naphtha market may last until the end of November,” said a second trader.

An armada of arbitrage naphtha cargoes flowing into the region is a major factor for the market weakness, with some 1.5m tonnes of 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.

Demand in Asia has been tepid so far as spot buying has slowed down amid turnarounds and lower runs at regional crackers.

Taiwan’s Formosa Petrochemical Corp (FPCC) temporarily cut runs at its 1.03m tonne/year No 2 cracker to 65-70% from 100% previously, following a small fire that damaged some equipment at the unit on 9 September.

Once the repair works are done, FPCC would raise the run rates at its 1.03m tonne/year No 2 cracker to full capacity next week.

Taiwan’s CPC Corp will extend the shutdown of its 500,000 tonne/year No 5 cracker at the Kaohsiung refinery and petrochemical complex to October.

The unit was taken off line in late April for maintenance, which was originally scheduled to last 70-75 days. CPC is considering bringing forward the permanent closure of the cracker this year.

The planned shutdowns are in line with the company’s promise to the Taiwanese government that the Kaohsiung complex, which has a 200,000 bbl/day refinery, will be fully closed by end-2015.

In the Philippines, JG Summit Petrochemical’s naphtha cracker remained shut after operations were halted in end-August because of technical issues. No exact restart schedule is immediately available.

However, traders based in the Philippines are optimistic about the cracker’s imminent restart sometime in September.

Operations at the Batangas-based cracker was halted last week following its start-up in the week of 16 August.

The cracker, which is Philippines’ first, can produce 320,000 tonnes/year of ethylene and 190,000 tonnes/year of propylene.

Additional reporting by Yeow Pei Lin and Angeline Soh

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