Asia naphtha draws support from sturdy demand; premiums firm

SINGAPORE (ICIS)–Asia naphtha prices are finding support from healthy downstream sectors, helping to underpin spot cargo premiums, with supportive near-term demand likely to be sustained.

Open-specification naphtha prices for first-half August averaged at $385/tonne CFR (cost and freight) Japan at early hours session on Tuesday, reversing the losses from the previous session on 29 June to climb by over $18/tonne.

Naphtha prices were mostly taking cues from global crude oil futures as concerns of fresh coronavirus infections across the globe loom, which could thwart fuel demand.

ICE Brent August crude oil prices stood at $41.46/bbl at noon session in Asia, while concerns lingered amid a spike in coronavirus cases in the Americas.

Ahead of the forward open-specification naphtha contracts rolling on 1 July, spot naphtha purchases are otherwise buoyant for August supplies that has helped to drive up spot premiums.

In a similar vein, healthy downstream margins are encouraging northeast Asia end-users to come forward to buy naphtha cargoes.

South Korea’s Hanwha Total Petrochemical secured a 25,000 tonnes shipment of heavy full-range naphtha for first-half August delivery to Daesan, in addition to cargoes the firm bought in the previous week at higher premiums than before.

Taiwan’s Formosa Petrochemical (FPCC) has also just bought August delivery spot naphtha at significantly higher premiums, reflecting  firm market fundamentals.

“Margins [for olefins] are good”, and likely to hold steady in the second-half of the month, said a northeast Asia-based market source.

Downstream margins for olefins have been on an uptrend, while the spread to the petrochemical feedstock has widened to healthy levels, ICIS data shows.

Reinforcing the buoyant sentiment, Asia naphtha’s forward market structure stood at a wide backwardation.

First-half August delivery naphtha prices were $14.25/tonne higher than first-half September as of 29 June. The same intermonth spread was just at a $4.00/tonne backwardation a month earlier, according to ICIS data.

Photo: A crude oil tanker (Shutterstock)

Focus article by Melanie Wee