Asia naphtha prices heading south on increased LPG usage

Focus story By Felicia Loo

SINGAPORE (ICIS)–Asia’s naphtha prices may slump owing to renewed interest of cracker operators in using more liquefied petroleum gas (LPG) as alternate, partial feed, traders said on Monday.

At midday, open-spec first-half July prices stood at $952.00-955.00/tonne, up by $5.50-6.50/tonne from 16 May in response to firmer Brent crude futures.

Otherwise, naphtha market is already showing signs of weakness.

“The market reacted very quickly, as simultaneously, there are many crackers using LPG as [partial] replacement,” said one trader.

The intermonth spread between the naphtha contracts for first-half July and first-half August was assessed at a backwardation of $16.00/tonne on 16 May, compared with a backwardation of $18.50/tonne in the previous week.

Over the same period, the intermonth spread between the naphtha contracts for second-half July and second-half August was assessed at a backwardation of $14.00/tonne versus $16.00/tonne previously.

The naphtha crack spread versus the July Brent crude futures was assessed at $129.93/tonne on 16 May, the weakest levels since 19 March, ICIS data showed. The crack spread stood at $154.93/tonne on 9 May.

The crackers in Asia could use LPG for up to 20% of their total feed, with naphtha as the dominant petrochemical feedstock.

Of late, weakening LPG prices – which have slid to below naphtha levels – have led to increased LPG cracking, the traders said.

Collectively, Asian crackers have purchased around 350,000 tonnes of LPG for June, levels which were deemed higher than normal, they said.

Lower freight rates in transporting LPG also provided incentives for cracker operators to use more LPG, the traders said.

South Korea’s Samsung Total is operating its 1m tonne/year cracker in Daesan at full capacity, and has plans to raise the use of LPG as part of its feed from the current 10% to 20%.

Taiwan’s Formosa Petrochemical Corp (FPCC) is operating its three crackers in Mailiao at 100%. The company mainly uses naphtha feedstock, with LPG making up 10-20% of the total feed.

FPCC has 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 site.

Naphtha supply tightness in the region is fast dissipating, as end-users are no longer in a rush to secure naphtha cargoes, the traders said.

“The [naphtha] supply is getting less tight,” said one trader, adding the higher-than-expected western arbitrage import volume for delivery in June will augment supply in the region.

Meanwhile, demand wise, Japan’s naphtha imports for ethylene production decreased 19% year on year to 987,344 tonnes in May, official data showed.

The country’s naphtha imports for the petrochemicals sector totalled $933.5m in April, down 20% from the corresponding period a year earlier.

Premiums on spot naphtha transactions are expected to dwindle, given that the market is tilting towards balanced supply and demand.

Price dips in downstream regional ethylene sector are also weighing on sentiment the naphtha market. Ethylene prices by $5/tonne during the week ended 16 May to $1,435-1,440/tonne CFR NE (northeast) Asia basis, according to ICIS data. 

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