Asia aromatics crater on decade-low naphtha market

Author: Clive Ong

2020/03/24

SINGAPORE (ICIS)--Asia's benzene, toluene and xylenes markets were on a nose-dive as feedstock naphtha values tumbled to decade lows amid a hammering of markets by coronavirus pandemic and low crude.

Naphtha spot prices on a CFR (cost & freight) Japan breached $200/tonne on 23 March, ICIS data showed. This has effectively taken out the 2008 low of $252/tonne on the weekly data.

With its precipitous free fall comes the natural question where it will end. For this, we look to the market trends for clues.

Below is a 30-year weekly chart for naphtha, going back all the way to 1990.

As mentioned above, the low of 2008 (green line) has been taken out, failing to provide support. We now have two more major lows, one at $160/tonne in November 2001 and $117.5/tonne in February 1999. These are denoted by the 2 black lines on the chart.

To further assist us in looking at the market flow, we have put in three Fibonacci retracement levels of 38.1%, 50% and 61.8% based off the 2001 low and 2008 high denoted by the red arrows. Subsequent Fibonacci retracements at the lower levels are based off the 61.8% of the higher preceding one.

For each cluster of three lines, the top line is the 38.1%, the second line is the 50% and the lowest line is the 61.8% retracement level.

Take some time to see how the market reacts to these various levels.

The chart shows three sets of Fibonacci retracement levels. The fourth and fifth sets are too small to be illustrated.

However, the calculations for the 61.8% of the 4th set is $199.9/tonne and the 61.8% of the 5th set is $186.1/tonne, which suggests that around these numbers there could be some support for the market.

Beyond these two levels, we have the lows of 2001 and 1999, which could be support levels as well.

Now for the aromatics market, we have an index below comprising daily data for benzene, toluene and xylenes.

Clearly, it can seen that the market is falling with great rapidity with no indication of finding a low for the moment.

The rate of change (ROC) oscillator below the index, measuring momentum, shows that long term momentum has turned negative (below the zero line) as denoted by the yellow circle in late January.

The small bounce (green circle) appears insignificant with the ROC looking to resume its downtrend.

It is likely that naphtha will have to put in a low first before aromatics will see some stabilization.

The recent spike in volatility in the crude markets has heightened uncertainty in naphtha and aromatics.

A calming down in the energy markets will be a big relief at this point in time.

Analysis by Clive Ong

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