China’s naphtha imports to rise on new PX capacities

Focus article by Felicia Loo and Samuel Wong

SINGAPORE (ICIS)–China is expected to increase its imports of naphtha to feed the surge in new paraxylene (PX) capacities that came on stream last year, and this will support the current uptrend in regional naphtha prices, traders said on Friday.

China’s naphtha imports surged by more than six fold to 398,750 tonnes in February from the same month in 2014 and up by 27% month on month, according to China Customs data.

“Besides the increase in PX capacities, China has been buying a lot of naphtha imports, partly in response to an overall price decline compared with last year,” said one trader.

About 1.25m tonnes/year of new PX capacity came on stream in China last year, according to ICIS data. Chinese PX producers typically procure heavy naphtha imports as raw material.

Open spec naphtha prices were assessed as $575.50-577.50/tonne CFR Japan on 26 March this year, tumbling down from $935.00-937.00/tonne CFR Japan on 26 March 2014, the data showed.

Naphtha prices had fallen sharply from last year in tandem with the slump in crude oil prices.

However, market sentiment remains buoyant despite the year-on-year drop in prices as spread values have improved recently.

Healthy naphtha demand from China and Taiwan has helped to support the bullishness in the current market which has seen a spike in gasoline blending due to the tightening availability of naphtha supply.

The spread between the first half of May and the first of June widened to $16/tonne in backwardation on 26 May from a backwardated $10.50/tonne spread on 19 March, ICIS data showed.

The naphtha crack of second-half May naphtha against May Brent crude futures strengthened to $131.98/tonne on 26 May, compared with $102.30/tonne on 19 March.

Meanwhile, Zhongjin Petrochemical is scheduled to start up its new 1.5m tonnes/year PX unit located at Ningbo, eastern China, by the end of the second quarter.

China imports of PX fell by 12% month on month to 839,520 tonnes in February, the customs data showed.

However, this is a growth of 10% compared to the same month in the previous year, customs data showed.

According to several market participants, the decline in import volumes in February was mainly due to the build-up of existing inventories from imports in the previous month.

The fact that Chinese PX players imported more naphtha in February despite firmer refinery runs underscored rising demand in the market.

China’s major refineries posted a higher average operating rate of 83.0% on 26 February, up from 82.7% two weeks ago, according to data from ICIS.

Sinopec Anqing restarted a 100,000 bbl/day crude distillation unit and some secondary processing units at its 190,000 bbl/day refinery from mid-February after turnarounds, and this had improved production rates.

The operating rate data is based on a survey of 40 major domestic refineries that have a combined capacity of around 8.76m bbl/day, which accounts for 77% of major refineries in China.

Looking ahead, naphtha imports are expected to grow in China amid softer refinery runs in the second half of March, market players said.

The average operating rate of major Chinese refineries fell to 82.46% on 26 March from 82.62% two weeks earlier, according to ICIS.

The drop was mainly because of a turnaround at a 3m tonne/year residue fluid catalytic cracker at Sinopec’s 460,000 bbl/day Zhenhai refinery that started on 12 March.

Sinopec is running the refinery at 92% of its capacity on 26 March, down by 3 percentage points from two weeks earlier.

With additional reporting by Samuel Wong

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