By Felicia Loo
SINGAPORE (ICIS)--Asia’s spot naphtha prices may move sideways post-Chinese New Year (CNY) amid uncertainties dogging the global economy, softening ethylene prices and dwindling deep-sea inflows, traders said on Thursday.
Open-spec naphtha prices for first-half March stood at $942.00-945.00/tonne CFR (cost & freight) Japan on Thursday morning, up by $3.25-4.25/tonne from Wednesday on the back of modest overnight gains in Brent crude futures.
Compared with the previous week, however, naphtha prices were lower by an average of $19.50/tonne or 2%, according to ICIS data.
On 29 January, the spread between the first-half March open-spec and second-half March open-spec contract sank to a two-month low of $10.75/tonne in backwardation from a backwardation of $12.00/tonne in the previous session.
Receding liquefied petroleum prices, which naphtha usually tracks, also cast downward pressure on the markets, the traders said.
LPG is an alternative feedstock to naphtha in petrochemical production.
“If LPG weakens, it will be a game changer,” said one trader.
The naphtha crack spread against March Brent crude futures narrowed to $128.45/tonne on 29 January, down 15% from week-ago levels, ICIS data showed.
“Olefins prices and petrochemical margins are coming off,” the trader said.
The benchmark ethylene prices were assessed as stable at $1,480-1,500/tonne CFR NE Asia on 29 January, compared with $1,500-1,540/tonne CFR NE Asia four weeks ago, according to ICIS data.
Ethylene spot prices in northeast Asia fell by $40-50/tonne during the week ended 24 January to $1,480-1,500/tonne CFR NE (northeast) Asia, while the spot prices in southeast Asia declined by $30-40/tonne to $1,400-1,440/tonne CFR SE Asia over the same period.
Prices came off from $1,520-1,560/tonne CFR NE Asia hit on 10 January, the highest levels last seen in 2008. Tight supply ahead of heavy maintenance schedule at regional crackers in Japan and Taiwan in the first half of the year drove up ethylene prices.
Spot ethylene liquidity in China was weak as most market players already wrapped up business activities and have already started going for their 31 January-6 February Chinese New Year holiday.
Ethylene margin in northeast Asia using naphtha feed slumped to $290/tonne in the week ended 24 January, from $412/tonne in the week ended 17 January, according to ICIS Weekly Margin report.
Meanwhile, further credit tightening is expected now that the US Federal Reserve Board announced further cuts in its long-standing stimulus programme, a move that would make business undertakings even harder in China, traders said.
A cash crunch in China over the past two months has been spurring SM players to prefer cash-based trades as bank lending has tightened.
While China has intervened to calm its credit markets, strains in the currency markets of emerging countries recently added to the uncertainty.
China’s dismal set of economic data last week further undermined confidence in the markets. The Chinese economy expanded 7.7% year on year in the fourth quarter of 2013, slowing down from the 7.8% growth recorded in the preceding quarter as its industrial output weakened.
For the whole of last year, the world’s second-biggest economy expanded by an average of 7.7%, its slowest growth rate in 14 years, according to China’s National Bureau of Statistics (NBS).
In December, China’s industrial production growth slowed down to 9.7% year on year from 10% in November, bringing the full-year 2013 industrial output expansion at 9.7%.
This year, economic conditions in China do not appear to be improving.
Investment bank HSBC announced that its preliminary manufacturing purchasing managers’ index (PMI) for China is at 49.6 for January, a six-month low and the first time the index has fallen below 50.0 since August 2013. A PMI reading below 50 indicates a contraction in manufacturing activities.
Nonetheless, Asian crackers are still running at their maximum capacity, according to some traders.
“The economic data doesn’t correlate with petrochemical demand, unless at extreme levels like the financial crisis,” said one trader.
Meanwhile, naphtha demand will be curbed owing to more active cracker maintenance in the next few months.
Six naphtha crackers in Japan 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.
Higher naphtha exports from Indian refiners in February also led to a decline in spot premiums.
Reliance Industries Ltd (RIL) sold by tender 55,0000 tonnes of spot naphtha cargo to Shell for loading in the last week of February at a lower premium of $28-29/tonne to FOB (free on board) Middle East quotes.
Its previous tender sale for a similar-sized cargo for loading on 15-20 February fetched a spot premium of $33/tonne to FOB Middle East quotes.
India’s naphtha exports are seen rising to 600,000-700,000 tonnes in February, up from around 600,000 tonnes in January.
However, the Asian naphtha market could take comfort from lower arbitrage inflows.
Around a million tonnes have been fixed for March arrivals so far, down from close to 2m tonnes of deep-sea inflows due for arrivals in February.
Additional reporting by Yeow Peilin and Clive Ong
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections