Asia naphtha gallops on crude, tightening deep-sea inflows

By Felicia Loo​

SINGAPORE (ICIS)–Asia’s naphtha rose sharply on Monday morning, buoyed by strengthening crude futures, traders said.

The second-half open-spec contract stood at $954.50-956.50/tonne CFR (cost & freight) Japan quotes, up by $12.50/tonne from 28 February, ICIS data showed.

By 02:02 GMT, London’s April Brent crude futures rose by $1.47/bbl at $110.54/bbl, while the April NYMEX crude futures were trading $1.21/bbl higher at $103.81/bbl.

Geopolitical concerns mounting over Ukraine raise fears of a war with Russia intervening. Ousted Ukraine president Viktor Yanukovich vowed that he would return to take control of the divided country.

Apart from crude-driven gains, the naphtha market is also being underpinned by falling deep-sea inflows from the West, prompting the backwardation and crack spread values to widen, traders said.

“The arbitrage supply is getting tighter,” said one trader, adding the sharply reduced flows provided a fillip to prices.

The intermonth spread between the naphtha contracts for second-half April and second-half May was assessed at a backwardation of $9.50/tonne in the week ended 28 February, compared with a backwardation of $8.00/tonne in the previous week.

Meanwhile, the naphtha crack spread versus the April Brent crude futures was assessed at $127.08/tonne, compared with $115.68/tonne over the same period.

Asia to receive 700,000 tonnes deep-sea naphtha inflows in April, down by more than half the volumes expected for March arrivals, according to traders.

For March, Asia is set to receive some 1.6m-1.7m tonnes of arbitrage naphtha supply from the western markets, they said. The deep-sea supply hails from northwest Europe, the Mediterranean, Russia and the US.

Some refiners may be cutting runs in Europe owing to dull gas oil demand amid a relatively warm winter, hence the naphtha flows to Asia would be curtailed.

Additionally, some of the naphtha supply in Europe has been diverted to the gasoline blending pool given the strong demand in West Africa, alongside weaker gasoline inventories in the US.

European barrels may head to the US if the cross-regional economic values were to be attractive enough.

US finished motor gasoline consumption increased for the week ended 21 February, causing inventories to fall, according to the recent US Energy Information Administration (EIA) report. Gasoline inventories fell by 2.8m barrels to 230.6m barrels for that week, while analysts had expected to see a gain of approximately 500,000 barrels.

The tightened arbitrage flows to Asia from Europe had led to higher premiums being transacted in a slew of spot naphtha transactions in the previous week.

South Korea’s Lotte Chemical bought 50,000 tonnes of spot naphtha supply for delivery to Daesan in the first half of April at firmer premiums.

The deal for the cargoes was done at a premium of $12.00/tonne to CFR Japan quotes. Earlier last week, Lotte bought 50,000 tonnes of spot naphtha supply for delivery to Yeosu in the first half of April, at a premium of $7/tonne to CFR Japan quotes. Prior to that tender, Lotte had purchased a spot 25,000 tonne naphtha cargo for delivery to Yeosu in the second half of March, at CFR Japan quotes plus $5.50/tonne.

Meanwhile, ethylene prices in northeast Asia rose by $10-20/tonne in the week ended 28 February to $1,480-1,500/tonne on a delivered basis, providing a fillip to the naphtha market. Ethylene end-users replenished their stocks at higher prices amid a tightly-supplied market.

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