Asia spot naphtha premiums flip to discounts on supply overhang

Author: Melanie Wee


SINGAPORE (ICIS)--Asia’s naphtha spot premiums have flipped to discounts on the back of a well-supplied market which is poised to see greater western arbitrage flows.

- Spot premiums flip to discount

- Supply overhang dents sentiment

- Arbitrage flows to rise

End-users in northeast Asia were seen picking up first-half October naphtha cargoes, with some contemplating term supplies, coinciding with the softening market that has pushed down cash differentials.

South Korea’s NCC (YNCC) secured spot open-spec naphtha at a discount of $2/tonne to spot CFR (cost and freight) Japan quotes for first-half October delivery.

This contrasted with its purchase of second-half September supplies where the firm forked out a premium near $10/tonne to spot CFR Japan quotes.

Meanwhile, Taiwan’s Formosa Petrochemical (FPCC) is likely to skip its spot tender for first-half October naphtha as it considers term supply opportunities amid sinking cash differentials.

In a similar vein, FPCC’s most recent purchase of second-half September delivery naphtha at a small premium of around $1.50/tonne to its pricing formula - a level already considerably lower than premiums near $8.00/tonne to its pricing formula it paid for first-half September cargoes.

Malaysia-based Lotte Chemical Titan was understood to have paid a single-digit discount for October naphtha, although this could not be independently verified.

Reinforcing the faltering market structure, naphtha’s forward intermonth spread between the first half October and the first-half of November delivery naphtha was at $1.00/tonne backwardation at the close of trade on 29 August.

The same spread has shrunk from a wide $9.00/tonne backwardation during the same period a month earlier, and a double-digit $14/tonne backwardation in end-May, according to ICIS data.

On arbitrage flows, traders estimate 1.5-1.6m tonnes of naphtha from Europe and the Mediterranean could arrive in Asia next month, well above monthly volumes that typically average around 1.2-1.3m tonnes.

That said, downstream margins for petrochemical production remains healthy. Aside from scheduled turnarounds, producers were otherwise maintaining olefin cracker operating rates at optimum levels.

Naphtha’s crack spread to October Brent crude futures stood at $98.65/tonne as of 29 August, recovering from $93.65/tonne at the start of the week, ICIS data showed.

Focus article by Melanie Wee