Asia naphtha premiums tumble on plentiful supply

SINGAPORE (ICIS)–Asia’s naphtha spot premiums have plummeted on the back of ample supplies, with greater surplus arbitrage cargoes expected to land in the region next month.

Spot open-spec naphtha prices for first-half October delivery stood at $660.50/tonne on a CFR (cost and freight) basis at early hours session.

Prices were little changed from the previous close on 24 August, but have fallen by $19/tonne from the same period a month ago, according to ICIS data.

Expectations of increased deep-sea arbitrage arrivals of western origin dampened sentiment, adding to a market awash with supply.

Underscoring the bearish market undertone, naphtha’s forward market structure showed signs of faltering.

The inter-month spread between first-half October and the first-half of November delivery naphtha has narrowed to a small backwardation of $0.50/tonne from a $9.50/tonne backwardation a month earlier.

The same spread was at a wide $14/tonne backwardation at end-May, when market fundamentals were strong, ICIS data showed.

An estimated 1.5m-1.6m tonnes of arbitrage flows from Europe is expected to reach Asia in September, higher than average monthly volumes at around 1.2m-1.3m tonnes, according to traders.

“[There is] lot of prompt naphtha; big arbitrage and petrochemical turnarounds season in September-October,” a Singapore-based trading source said.

Fuelling the weakening market conditions, spot cargoes have yielded much lower premiums than previous transactions.

South Korea’s Hanwha Total Petrochemical recently paid a premium of $3.00/tonne to spot CFR Japan quotes for naphtha supplies, delivering to Daesan in the first-half of October.

The premium level was notably lower than premiums at slightly above $10/tonne to spot quotes the firm forked out for second-half September delivery cargoes.

Taiwan’s Formosa Petrochemical (FPCC) recently secured second-half September delivery naphtha at premium of around $1.50/tonne to its pricing formula.

In a similar vein, FPCC had earlier paid higher premiums at around $8.00/tonne to its pricing formula for first-half September supplies.

Naphtha demand typically peaks during the last quarter when raw material demand for petrochemical production rises during the festive season.

“Peak season starts after the [far east] turnarounds … so market may recover from end 2018,” a Singapore-based market source said.

Focus article by Melanie Wee