Asia naphtha margins at 2019 highs on supply woes

Author: Melanie Wee


SINGAPORE (ICIS)--Asia’s naphtha margins have climbed to their highest this year driven by concerns over supply combined with a steady bout of buying, boosting spot premiums.

A container ship at a Tokyo port in Japan. (Photo by Franck Robichon/EPA-EFE/Shutterstock)

Naphtha’s crack spread, a measure of the product’s refining margin, closed on 11 October at $105.83/tonne, the first time this year it has surpassed the $100/tonne mark - a level not seen since October 2018.

The crack spread had languished in negative territory four months ago in mid-June.

In part buoyed by gains in global crude oil futures, open-specification naphtha prices for second-half November delivery averaged at $559.50/tonne CFR (cost and freight) in the morning session on Monday, steady from the previous close on 11 October and at the highest since 22 May, according to ICIS data.

On a free-on-board (FOB) Middle East basis, spot naphtha prices have hit a five-month high of $510.11/tonne as of 11 October, ICIS data showed.

International benchmark December ICE Brent crude oil futures rose by more than 3% last week to settle at $60.51/bbl on 11 October.

Market sentiment was boosted by gains in oil prices, following news reports of an Iranian oil tanker being struck by missiles in the Red Sea near Saudi Arabia, stoking concerns on supply disruptions.

Ever since the attacks at oil facilities in Saudi Arabia on 14 September, along with moves to plug supply shortfalls, naphtha markets have rebounded.

Re-inforcing strong market fundamentals, naphtha's forward market structure has widened significantly in backwardation, with prompt-month values well above forward months.

Second-half November open-specification naphtha prices stood at $24.00/tonne higher than second-half December prices, compared with the backwardated spread of $2.00/tonne a month ago.

Spot naphtha cargoes were transacted at strong premiums, including exports from India, mirroring the firm sentiment amid perceived contraction in supply.

An estimated 2.1m tonnes of naphtha are expected to arrive in Asia this month, lower than September volumes at around 2.5m tonnes, according to industry sources.

India’s Bharat Petroleum Corp Ltd (BPCL) sold a 30,000-tonnes cargo for 3-5 October loading from Mumbai, at a premium near $21/tonne to its pricing formula - sharply higher than the single-digit premium it fetched for a September cargo.

South Korea's Yeochun NCC (YNCC) was understood to have picked up second-half November naphtha at a premium of above $20/tonne to spot CFR Japan quotes, compared with the $10/tonne premium it paid for first-half November supplies.

Focus article by Melanie Wee