Asia naphtha-ethylene spread may stay wide at $500-600/tonne

SINGAPORE (ICIS)–Asia’s naphtha-to-ethylene price spread is expected to remain wide at $500-600/tonne amid slowing petrochemical demand and a supply glut of the open-spec material in the region, market participants said on Friday.

Ethylene margin using naphtha feed in northeast Asia narrowed to $645/tonne NE (northeast) Asia during the week ended 17 July, compared with $698/tonne NE Asia in the previous week, according to ICIS.

“The ethylene supply-and-demand balance now has eased as Korea, Japan and Taiwan have spot cargoes although I don’t think the balance can go back to normal or to the spread of $350-400/tonne,” a Japanese trader said.

Ethylene prices breached the $1,200/tonne CFR (cost and freight) NE (northeast) Asia level last week on strong availability of cargoes in the region amid a slowdown in demand for July cargoes in southeast Asia, market sources said.

At midday, ethylene prices stood at $1,160-1,180/tonne CFR NE Asia, while on-spec naphtha was trading at $488-491/tonne CFR Japan  according to ICIS.

“I feel ethylene spot prices might settle at $1,100/tonne CFR NE Asia because naphtha is hovering around $500/tonne CFR Japan,” the trader said.

“So I think a $500-600/tonne spread should be the new normal,” he said, “regardless of China’s economy”.

China, which is a key petrochemical market in Asia, is now on its fifth year of economic slowdown. In 2015, the world’s second-biggest economy is expected to post a 7.0% growth – its slowest in 25 years.

Meanwhile, Asia remains awash with naphtha supply, as deep-sea imports are flooding the market.

For September, naphtha imports from the Mediterranean, northwest Europe, Russia and the US are estimated at 1.7m-1.8m tonnes – deemed voluminous for Asia.

The August inflows were heftier at 2.0m tonnes, with the supply overhang for August-arrival cargoes slowly clearing out amid high freight costs.

Meanwhile, Indian refiners are seen curbing naphtha exports to 500,000 tonnes in August, down from 600,000 tonnes in July.

But the Asian market is not in any shortage of naphtha supply.

Demand continues to be stable and as ample cargo availability persists, with the August/September naphtha swaps spread at a contango of $1.50/tonne on 24 July.

The naphtha September/October swaps spread was quoted at a contango of $1.00/tonne, while the October/November spread was at minus 75 cents/tonne, according to ICIS.

The November/December spread was assessed at a contango of 50 cents/tonne.

Earlier in the week, the August/September swaps spread was in 50 cents/tonne in contango, while the September/October and October/November spreads were at parity.

The November/December spread was assessed at a backwardation of 25 cents/tonne early this week.

While many regional crackers have resumed operations after completing maintenance, production was capped at below 90% of capacity, while some minor turnarounds continued.

In Taiwan, Formosa Petrochemical Corp (FPCC) is currently operating its 700,000 tonne/year No 1 cracker in Mailiao at around 80% of capacity after a scheduled shutdown, a company source said.

The plant restarted on 18 July after it was taken off line on 9 June.

In South Korea, SK Global Chemical (SKGC) is operating its 190,000 tonne/year No 1 naphtha cracker in Ulsan at around 80% of capacity for most of July. The reduced run rate will likely continue into August due to minor maintenance works, a source close to the company said.

The plant is scheduled to have two rounds of maintenance work done during 1-27 July and 1-29 August, the source said.

Focus article by Felicia Loo and Helen Lee

Additional reporting by Yeow Peilin