Asia naphtha plunges on crude losses, bearish fundamentals

SINGAPORE (ICIS)–Asia’s naphtha prices have plummeted below $400/tonne on Friday, on overnight losses in global crude futures amid receding demand and burgeoning supply, traders said.

Second-half August open-spec naphtha price plunged by $20/tonne from the close of trade on Thursday to $392.75-394.75/tonne CFR Japan on Friday morning.

“It is a bearish naphtha market – the mogas [motor gasoline] market is poor and cracker maintenance is not helping [prices],” said one trader.

On 7 July, August NYMEX WTI crude futures declined by $2.29/bbl to $45.14/bbl, while September Brent crude futures settled down by $2.40/bbl to $46.40/bbl.

NYMEX WTI crude oil futures fell sharply on length liquidation despite crude oil inventories falling for the seventh consecutive week. The weekly supply statistics from the Energy Information Administration (EIA) revealed crude oil and gasoline stocks falling less than market expectations. Distillate and gasoline inventories have been building sharply in the US east coast.

A strong US dollar adds pressure on the commodities markets. The US dollar strengthened against the euro and the sterling, making dollar-denominated commodities like oil less attractive to holders of other currencies.

Consequently, oil prices fell below the psychological $50.00/bbl technical support barrier this week and has since continued their decline.

Meanwhile, the spread between 92-octane gasoline and naphtha has been falling amid burgeoning supply of the motor fuel despite seasonal peak driving demand in the US.

The gasoline/naphtha spread or the blending margin collapsed to $6-7/bbl from around $12/bbl previously, depressing the demand for gasoline blending, the traders said.

Naphtha usage among regional crackers is also being dampened, as some operators are maximising liquefied petroleum gas (LPG) as partial feedstock for producing petrochemicals, they said.

“Demand is lacklustre unlike previous years when gasoline should be bullish and LPG on a weaker mode,” said one trader, referring to the seasonal trend of higher naphtha demand during the summer months in the northern hemisphere that failed to manifest this year.

Compounding the situation, Middle Eastern refiners are maximising exports of lighter oil products, along with ample naphtha exports from refiners in India. These have overshadowing recently low arbitrage volumes into Asia, with August deep-sea volumes pegged at 1.1m tonnes, the traders said.

This is coming at a time of major cracker turnarounds in Asia.

In Taiwan, Formosa Petrochemical Corp (FPCC) will be taking off line its 1.03m tonne/year No 2 cracker in Mailiao from 1 August to 22 September.

In Japan, JX Nippon Oil & Energy will be carrying out maintenance at its 460,000 tonne/year cracker from 1 August to 28 September.

In China, Sinopec Tianjin Sabic would be shutting down its 1m tonne/year cracker from 10 August to 20 September, while Tianjin Petrochemical will take off line its 200,000 tonne/year cracker from 15 August to 26 September.

Also weighing on the markets were macroeconomic issues related to China, the world’s second-biggest economy, which was dogged by dismal economic data.

The Caixin general manufacturing purchasing managers’ index (PMI) for China fell to 48.6 in June from 49.2 in May this year after output fell at the quickest rate since February, the Chinese media group said.

A PMI reading above 50 indicates an expansion in manufacturing activity, while a reading below 50 denotes a contraction.

China’s official purchasing managers’ index (PMI) fell to a four-month low of 50.0 in June from 50.1 in May and April this year, marking its lowest level since February.

Focus article by Felicia Loo

Top image: Petrochemical plant in Kelamayi, China (Source: Sipa Press/REX/Shutterstock)