Asia naphtha market structure in positive zone on buoyant demand

Author: Melanie Wee

2020/09/01

SINGAPORE (ICIS)--Asia naphtha markets are poised for tailwinds as the market structure stays in positive territory, aided by healthy spot demand.

The product’s forward market structure stood in backwardation at the midday session in Asia on Tuesday, with open-specification naphtha prices for second-half October delivery $1.25/tonne higher than second-half November.

The intermonth spread averaged at a $0.50/tonne contango for most of the previous week, before moving back to a $1.75/tonne backwardation on 31 August.

A healthy bout of spot buying of October delivery naphtha is helping to lift the market, absorbing supply.

Taiwan’s Formosa Petrochemical (FPCC), a key importer of the petrochemical feedstock, bought open-specification naphtha for first-half October delivery to Mailiao.

In a similar vein, South Korean end-users have been scooping up spot naphtha cargoes for October arrival.

South Korea’s Yeochun NCC (YNCC) recently purchased first-half October delivery naphtha cargoes at a slight discount to spot CFR Japan quotes.

South Korea’s Lotte Chemical also secured first-half October naphtha at a similar low single-digit discount, as did LG Chem which was in the market with October spot requirements.

Cracker maintenance being completed in October is anticipated to rev up demand for the month.

FPCC is conducting a planned turnaround at its No 3 cracker for up to 50 days, which is expected to be completed around end-September.

Moreover, market expectations of reduced western arbitrage flows to Asia is aiding in lifting sentiment.

Around 1-1.4m tonnes of northwest Europe naphtha is estimated to land in Asia this month, lower than monthly average volumes at around 1.7-1.8m tonnes.

Hurricane Laura had led to several oil facilities in the US being taken offline as part of precautionary measures before Laura made landfall.

However, there may well be increased clean product flows likely to be diverted from Europe to the US to plug any output shortfall. Invariably, this could limit flows of naphtha and gasoline used for blending otherwise heading to Asia.

“Demand for olefins should be better for October,” said a northeast Asia-based market source.

Naphtha prices for second-half October delivery averaged at $410.00/tonne CFR Japan at midday session on Tuesday, up from $376.00/tonne compared with month-earlier levels, ICIS data shows.

Focus article by Melanie Wee