APIC ’15: Wide Asia naphtha-ethylene spread unsustainable – sources

SEOUL (ICIS)–The current wide spread between naphtha and ethylene spot prices in Asia is unsustainable and is seen narrowing by the second half of the year, market sources said.

“The current spread is not normal,” said a source from a Korean cracker operator speaking to ICIS at the sidelines of the 2015 Asian Petrochemical Industry Conference (APIC) in Seoul, South Korea.  The two-day event ends on 8 May.

“The economics for monomer trading is better than selling PE (polyethylene) but this is not so easy to sustain,” he said, adding that the company was not able to take advantage of high ethylene prices due to its long-term contractual commitments to its PE customers.

The spread between ethylene and naphtha is currently hovering at more than $700/tonne. Ethylene spot prices were assessed at $1,360-1,420/tonne CFR (cost & freight) NE (northeast) Asia on 6 May. Second-half June open-spec naphtha prices were at $595.25-597.25/tonne CFR Japan during the same period.

In contrast, indicative pricing for linear low density PE (LLDPE) were pegged at $1,350-1,370/tonne CFR China on 6 May – below ethylene spot prices – according to data from ICIS.

Asia ethylene spot prices have risen at a sharper pace compared to PE partly amid tightened supply for the monomer.

An estimated 17 crackers in Asia and the Middle East will be shut mostly for scheduled maintenance from March-May.

Ethylene prices in the second quarter have also been bolstered by healthy demand from derivative markets such as styrene.

The tight supply, however, is expected to ease from June due to the restart of crackers in the region after the turnarounds, market sources said.

“The spread may narrow by June or July but it will still be at more than $300/tonne,” said a Japanese olefins trader.