Asia’s naphtha contango to steepen amid ample prompt supply

SINGAPORE (ICIS)–Asia’s naphtha is expected to face a deepening contango as the market is shrouded by ample supply that has led to weakening price differentials for material transacted during the week, traders said on Friday.

While demand in South Korea and Taiwan remains strong, lower Chinese import requirements are weighing on the market at a time of rebounding Indian naphtha exports, stable deep-sea inflows as well as the drop in prices of liquefied petroleum gas (LPG) and gasoline, hence curbing the usage of naphtha for gasoline blending, the traders said.

“There is a lot of supply in the prompt market,” said a trader.

The intermonth spread between the first half of June open-spec naphtha and first-half of July open-spec naphtha contracts flipped into a contango of 25 cents/tonne at the close of trade on 28 April, compared with a backwardation of $2.00/tonne on 29 April, ICIS data showed.

At $0.25/tonne contango, the intermonth spread was the weakest since 21 March when the intermonth spread was assessed at a contango of $0.50/tonne, it showed.

With an increase in condensate being used as feedstock of late, there was a surplus of  naphtha and gasoline products being produced and they have ended up in floating storage as well as in the tanks, with sellers eagerly wanting to offload the products, the traders said.

This was evident in the price differentials which slid into a deeper discount level during the week.

South Korea’s Yeochun NCC (YNCC) has bought by tender 75,000 tonnes of naphtha for delivery in the first half of June, at a discount of 3.25/tonne to CFR (cost & freight) Japan quotes.

YNCC previously bought a spot naphtha cargo of 25,000 tonnes for delivery in the second half of May, at a discount of $1/tonne to CFR Japan quotes.

Taiwan’s Formosa Petrochemical Corp (FPCC) has bought by tender 50,000-75,000 tonnes of naphtha for delivery to Mailiao in the first half of June.

The deals for the cargoes were concluded at a discount level of close to $5/tonne to CFR Japan quotes, or the equivalent of around discount of $3.50/tonne to CFR Japan quotes for delivery to Yeosu in South Korea.

FPCC previously bought 100,000-150,000 tonnes of open-spec naphtha for delivery to Mailiao in the second half of May, at a discount of $2-3/tonne to CFR Japan quotes.

Earlier during the week, South Korea’s Hanwha Total has bought 50,000 tonnes of naphtha for delivery in the first half of June, at a discount of $1.00-1.50/tonne to CFR Japan quotes.

Hanwha previously bought 25,000 tonnes of naphtha at parity against CFR Japan quotes for delivery in the second half of May.

China’s reduction of naphtha imports cast a bearish hue on the market, with March naphtha imports declining by 27% from February to 634,425 tonnes, despite imports rising by 28% year on year, Chinese customs data showed.

Weakening gasoline demand in Asia has led to lower naphtha requirements being filtered for gasoline blending be it in China or outside China, the traders said.

In addition, arbitrage supply to Asia remains somewhat stable, they said.

Asia is expected to receive around 1.45m tonnes of deep-sea naphtha supply in May, down from a revised estimate of 1.5m tonnes for April, according to traders.

The arbitrage inflows hail from northwest Europe, the Mediterranean, Russia and the US.

Rising exports were seen from refiners in India, with May exports likely to rebound from April volumes of 550,000-600,000 tonnes, the traders said.

Indian refiners exported around 700,000 tonnes of naphtha in March, they added.


Picture (top): Asia is expected to receive around 1.45m tonnes of deep-sea naphtha supply in May (Source: Mito Images/REX/Shutterstock)

Focus article by Felicia Loo