Asia naphtha crack spread falters as demand wanes

SINGAPORE (ICIS)–Naphtha’s crack spread in Asia has slumped to three-month lows, while its market structure turned fragile as lacklustre demand in downstream sectors is likely to persist.

The naphtha crack spread to ICE Brent crude oil futures – which is a measure of refining margins – closed at $58.75/tonne on 18 February, down from $61.80/tonne in the previous day and the lowest level since early November 2019.

The market is in backwardation, which recently narrowed, with the spread between H1 April and H1 May delivery contracts at $8.00/tonne on Wednesday morning.

The single-digit intermonth spread was down from the $21/tonne spread recorded a week earlier, underlining the bearish market undertone.

Weakness in downstream olefins demand weighed on sentiment.

Taiwan’s CPC, usually an importer of naphtha, offered via a rare export tender March-loading naphtha from Kaohsiung while its No 3 cracker is shut for a two-month long scheduled turnaround.

Efforts to divert potentially bloating supply come on the back of concerns about global petrochemical demand amid the ongoing coronavirus (Covid-19) outbreak.

Formosa Petrochemical (FPCC), also a key naphtha importer in Taiwan, bought no more than 30,000 tonnes of the material at a premium of around $13.50/tonne to its pricing formula. The cargo is for second-half March delivery to Mailiao.

Premium levels were down from its February purchase, while the March volume was much lower than its usual monthly intake of 100,000 tonnes.

Overall demand for naphtha is largely conservative, with buyers cautious amid the deadly Covid-19 outbreak, casting uncertainty on oil products and petrochemical demand.

Spot naphtha prices for first-half April averaged on Wednesday morning at $493.50/tonne CFR (cost and freight) Japan, up $9.50/tonne from the preceding day’s close in response to gains in crude oil futures.

Focus article by Melanie Wee

Photo: Medical team members prepare to check in at Hohhot Baita International Airport before leaving for Hubei Province, where they will help out in efforts to control the coronavirus outbreak. (Source: Xinhua/Shutterstock)

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