Asia naphtha may rebound; sell-off seen overdone

By Felicia Loo

SINGAPORE (ICIS)–Asia’s naphtha prices may be heading for a short-term rebound following hefty losses during the week, as strong olefins prices continue to provide a fillip to high cracker runs, traders said on Friday.

At midday, the first-half March open-spec prices weakened to $933.00-936.00/tonne CFR (cost & freight) Japan, down from $975.50-977.50/tonne CFR Japan at the close of trade on 10 January, ICIS data showed.

The intermonth spread between the first-half March and first-half April contracts narrowed to $13.00/tonne in backwardation on 16 January, from a backwardation of $18.50/tonne on 10 January, it indicated.

Meanwhile, the naphtha crack spread tumbled to $134.50/tonne against March crude futures on 16 January against $172.80/tonne over the same period, the data showed.

“The heavy arbitrage supply is a determinant factor,” said one trader.

Asia is expected to receive 1.8m-2.1m tonnes of deep-sea naphtha supply from the western regions for delivery between January and the first half of February, according to traders.

The poor gasoline market in Europe, which resulted in very limited naphtha use in gasoline blending, prompted the increase in naphtha shipments to Asia instead.

The arbitrage supply typically hails from northwest Europe, the Mediterranean, Russia and the US.

However, other market players argued that regional demand remained strong and that coupled with lower refinery runs owing to weaker oil product margins, the Asian naphtha market would be able to absorb the voluminous inflows of western supply.

“The [naphtha] sell-off was overdone,” said another trader, referring to the market sell-down in the week.

Regional naphtha demand was anything but weak, though the decline in liquefied petroleum gas (LPG) prices also led to the falling naphtha prices, the traders said.

End-users would be enticed to use LPG as a partial feedstock given a narrower spread between LPG and naphtha seen about two weeks ago.

“LPG prices [may] find a floor [in prices],” said a trader.

With LPG prices having hit the support levels, the economics to switch to cracking LPG partially might not be so favourable at this juncture, the traders said.

Underlying the support on strong naphtha demand, the crackers in the region are maximising their runs, they added.

Japan’s Mitsui Chemicals has raised the operating rate at its 450,000 tonne/year Osaka cracker and its 617,000 tonne/year Chiba cracker to about 90% of capacity this month from 80-85% in December.

Another Japanese producer, Keiyo Ethylene, is currently operating its 740,000 tonne/year naphtha cracker in Ichihara, Chiba prefecture, at 90-95% of capacity, similar to levels in December last year.

Meanwhile, Taiwan’s Formosa Petrochemical Corp (FPCC) is currently operating its three crackers in Mailiao at full capacity. The company operates a 1.2m tonne/year No 3 cracker, a 1.03m tonne/year No 2 cracker and a 700,000 tonne/year No 1 cracker at the Mailiao site, according to ICIS data.

During the week, FPCC has bought 100,000-150,000 tonnes of spot naphtha supplies for delivery to Mailiao in the second half of February.  The deal for the cargoes was done at a premium of $10.00-11.00/tonne to CFR Japan quotes.

South Korea’s Lotte Chemical has purchased by tender naphtha supplies for delivery in the second half of February. The company bought two cargoes for delivery to Yeosu and one cargo for Daesan delivery – all of which were done at around a premium of $16/tonne to CFR Japan quotes.

Backing the high run rates were the set of strong olefin prices in Asia, ICIS data showed.

Ethylene spot prices in northeast Asia rose by $20/tonne to $1,520-1,560/tonne CFR NE (northeast) Asia in the week ended 10 January, while the spot prices in southeast Asia increased by $25.00/tonne at the low end to $1,440-1,490/tonne CFR SE Asia over the same period, according to ICIS.

Northeast Asian ethylene import prices rose to levels last seen in 2008, driven mainly by tight regional supply ahead of a heavy cracker shutdown schedule in Japan and Taiwan in the first half of the year.

Six Japanese naphtha crackers with a total capacity of around 3.4m tonnes/year will be taken off line for maintenance between February and June, compared with two plant shutdowns in Japan during the same period last year.

However, with a more active maintenance in the next few months, the demand for naphtha may be curbed further out, the traders said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections