SINGAPORE (ICIS)--Asia’s naphtha forward market structure flipped to a contango from a backwardation, with prompt-month prices weaker than forward months amid ample supply and slack demand.(Source: Xinhua/REX/Shutterstock)
Open-specification naphtha prices for first-half July delivery stood at $551.75/tonne CFR (cost and freight) Japan basis at early hours session, down from the previous day’s close at $562.25/tonne CFR Japan.
Prices for second-half July delivery stem stood at $552.25/tonne CFR Japan, reflecting the contango spread between the two inter-half months, according to ICIS data.
A contango market structure typically reflects weak market fundamentals.
Spot naphtha buying in northeast Asia for downstream petrochemical production was somewhat muted, with end-users yet to emerge with fresh first-half July spot requirements.
Further reinforcing the bearish sentiment, Asia’s naphtha’s crack spread against July ICE Brent crude oil futures, was at $24.43/tonne on 22 May, down from the previous day's $31.60/tonne close – a level that was already a three-month low, according to ICIS data.
The crack spread, a measure of naphtha refining margins, languished at lows of $30s/tonne throughout the week ended 17 May.
A well-supplied market dampened sentiment, amid a stream of Western arbitrage flows set to arrive in Asia this month, estimated at around 1.4m tonnes.
Moreover, downstream cracker turnarounds are coinciding with the lack of spot demand.
South Korea’s Yeochun NCC (YNCC) is carrying out planned maintenance at its ethylene cracker from 20 May that is expected to last until end-June.
YNCC most recently picked up a naphtha cargo at a slight discount to spot CFR Japan quotes for second-half June delivery to Yeosu, contrasting with the low-single digit premium to spot CFR Japan quotes the firm forked out for second-half May supplies.
South Korea’s Hanwha Total Petrochemical is also conducting scheduled cracker maintenance, which is expected to be prolonged until later this month.
Naphtha is a key petrochemical feedstock for downstream crackers in the manufacture of olefins and aromatics.
Focus article by Melanie Wee