SINGAPORE (ICIS)--Asia naphtha markets are softening on the back of faltering demand as the market structure flipped into a contango, with greater excess supply envisaged in the days ahead.
Naphtha’s forward intermonth spread for the second half of September and the second half of October flipped from a backwardation of $2.00/tonne to a $2.00/tonne contango, where prompt-month prices are now weaker than forward months.
A contango market typically reflects bearish market fundamentals, with spot demand for prompt cargoes tapering off amid a combination of cracker maintenance and waning consumption for gasoline-blending purposes.
This has been further exacerbated by mounting coronavirus infections across the globe that continue to dampen fuel demand as a whole.
“It is not economical [for naphtha] to be used for mogas-blending now,” said a northeast Asia-based market source.
Market expectations of potential increases in
arbitrage flows from Europe to Asia weighed on
market sentiment, amid the west-east arbitrage
deemed workable on paper.
On the export front, India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) offered through a tender a naphtha cargo for early-September loading.
Taiwan's Formosa Petrochemical (FPCC) has shut its No 3 cracker from 11 August for planned maintenance, expected to last for up to 50 days.
FPCC has skipped its buy-tender for second-half August naphtha cargoes. The firm has secured first-half September supplies and is in the market with spot requirements, albeit for second-half September delivery.
Naphtha’s crack spread, a measure of its refining margin, stood at $56.60/tonne as of 11 August, down from $62.73/tonne in the previous week and markedly lower than $82.08/tonne a month earlier.
Focus article by Melanie Wee
Photo: At a port in Tokyo, Japan. (Photo by Franck Robichon/EPA-EFE/Shutterstock)
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