Asia naphtha softens on LPG slump, heavy cracker turnaround

By Felicia Loo

SINGAPORE (ICIS)–Asia’s naphtha prices may soften post-Chinese New Year, in tandem with weakening values of liquefied petroleum gas (LPG), which is a substitute feedstock for petrochemical production, traders said on Friday.

Compounding the situation is the spate of cracker turnarounds that translates to lower demand for naphtha, they said.

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 the country during the same period last year.

At midday, open-spec naphtha prices rose by $6.00-7.00/tonne from Thursday to $932.50-935.50/tonne CFR (cost & freight) Japan, supported by overnight gains in crude futures.

Compared with end-January, however, prices were weaker by an average of $9.75/tonne, ICIS data showed.

“The [naphtha] supply/demand balance will get less tighter than before because of heavy [cracker] turnarounds in Taiwan and Japan, as well as weaker LPG [liquefied petroleum gas] prices,” said one trader.

LPG prices in Asia have fallen recently by some $19-20/tonne to around $960/tonne, with demand easing  owing to the fact that winter will be over soon and the mild weather will reduce LPG demand, traders said.

Additionally, the dwindling LPG prices in the US cast downward pressure on LPG prices in Asia, they said.

Naphtha is the dominant feedstock used by crackers in Asia, while LPG is an alternative feed for up to 15% of the total cracking capacity.

In a sign of an overall faltering market, spot naphtha premiums struck in recent deals mostly weakened.

South Korea’s Lotte Chemical has bought a spot 25,000-tonne naphtha cargo for delivery to Daesan in the second half of March at a premium of $10/tonne to CFR Japan quotes.

Lotte previously bought two spot naphtha cargoes totalling 50,000 tonnes for delivery in the first half of March, at a premium of around $11/tonne to CFR Japan quotes.

In an earlier spot purchase, the company bought a 25,000-tonne naphtha cargo for delivery to Daesan in the first half of March, at a premium of $12/tonne to CFR Japan quotes.

The premiums declined compared with Lotte’s purchases for delivery in the second half of February, whereby it had scooped a total of 75,000 tonnes of naphtha – two 25,000-tonne cargoes for delivery to Yeosu and another 25,000-tonne cargo for Daesan delivery – at a premium of around $16/tonne to CFR Japan quotes.

Meanwhile, with two separate condensate splitters totalling a combined capacity of around 255,000 tonnes/year due to come on stream in Asia in the next few months, there will be more light naphtha supply available, traders said.

The Asian markets have been awash with arbitrage naphtha cargoes from the West, with around a million tonnes of such deep-sea fixtures arriving in March.

More deep-sea naphtha inflows may be expected, now that softer LPG prices may prompt European crackers to use more LPG as feedstock for petrochemical production.

Further undermining the sentiment in the naphtha market was the petrochemical demand outlook following China’s disappointing economic data, indicating a slowdown in the world’s second-biggest economy after the US.

Downstream, ethylene spot prices were assessed as unchanged at $1,480-1,500/tonne CFR NE (northeast) Asia on 6 February, down from $1,520-1,560/tonne CFR NE Asia four weeks ago, according to ICIS.

Additional reporting by James Dennis

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