Asia naphtha extends losses on weaker crude oil; demand flat

Author: Melanie Wee

2019/08/08

SINGAPORE (ICIS)--Asia naphtha prices spiralled lower in response to steep losses in global crude oil futures, while downbeat demand weighed on the market.

Open-specification naphtha prices for second-half September delivery stood at $454.50/tonne CFR (cost and freight) Japan at early hours session on Thursday, tumbling by $8.50/tonne from the previous day’s Asia close.

Prices are down by a hefty 12% from month-earlier levels, according to ICIS data.

Spot CFR Japan naphtha prices have been on downward trend since the start of the week, tracking weakness in global crude futures, which the petrochemical feedstock is closely-related to.

ICE Brent crude oil futures for October had settled lower at $56.23/bbl as of 7 August, following a surprise build-up in US crude oil inventories compounded by fears of slowing demand.

Naphtha’s crack spread, a measure of naphtha refining margins, stood at $21.70/tonne on 7 August, the lowest since 28 June when the spread stood at below $20.00/tonne, ICIS data showed.

A dearth of physical spot buying in northeast Asia for second-half September delivery supplies generated downward pressure on sentiment.

Taiwan’s Formosa Petrochemical (FPCC), a major buyer, skipped its first-half September spot naphtha requirements owing to maintenance at its cracker in Mailiao next month.

FPCC will shut its No. 2 downstream 1.035m tonnes/year ethylene cracker in mid-August to end-September.

In South Korea, LG Chem is expected to keep run rates at its cracker with an ethylene capacity of 1.27m tonnes/year at reduced output, which might curtail its demand for the petrochemical feedstock.

Reinforcing the weakened market, naphtha’s forward intermonth backwardation between the second-half of September and the second-half of October shrank to $2.25/tonne on 8 August, a two-week low.

Naphtha is a key petrochemical feedstock for downstream crackers in the manufacture of olefins and aromatics.

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