Focus story by Felicia Loo
SINGAPORE (ICIS)--Asia’s naphtha prices may fall further as supply is rising amid softening demand, with a major regional cracker due for turnaround in August, traders said on Friday.
Open-spec first-half September prices rebounded to $969.00-972.00/tonne CFR (cost and freight) Japan on Friday morning, up by an average of $7/tonne from Thursday’s close on crude gains overnight, ICIS data showed.
However, prices were still lower compared with $987.50-989.50/tonne CFR Japan on 15 July.
The spread between the first half of September and the first half of October contracts was assessed at $13.00/tonne in backwardation on 17 July, lower compared with a backwardation of $15.00/tonne earlier in the week, according to ICIS.
The front-month naphtha contract against ICE Brent crude futures was quoted at $107.61/tonne on 17 July, sharply lower than the crack value of $110.47/tonne seen on 7 July, ICIS data showed.
“Fundamentals are not that strong,” a trader said.
Naphtha prices surged in the previous week on the back of strong gasoline demand but took a dive this week, as the gasoline market would not take in as much naphtha when it became too costly for gasoline blending, traders said.
This sell-off in the naphtha market gained momentum, exacerbated by growing supply in the region, they said.
Asia has booked around 1.3m tonnes of deep-sea naphtha supply for arrival in August, up by some 8% from the levels in July.
For July, the arbitrage inflows – which hail from northwest Europe, the Mediterranean, Russia and the US – were pegged at 1.2m tonnes.
Compounding the situation, India’s refiners will be exporting around 700,000 tonnes of naphtha in July, compared with 680,000-690,000 tonnes in June.
Meanwhile, the upcoming maintenance at the biggest cracker of Taiwanese major Formosa Petrochemical Corp (FPCC) continues to weigh on naphtha prices, traders said.
FPCC will be shutting down its 1.2m tonne/year No 3 cracker in Mailiao for 40-45 days of maintenance from mid-August.
The company also runs a 1.03m tonne/year No 2 cracker and a 700,000 tonne/year No 1 cracker at the site, according to ICIS data.
Meanwhile, petrochemical demand in the key China market remained constrained despite some improvement in economic data.
China’s economy posted an annual expansion of 7.5% in the second quarter, accelerating slightly from the 7.4% growth reported in the first quarter, according to the country’s National Bureau of Statistics (NBS). The country’s GDP grew by 2% from the previous quarter on a seasonally adjusted basis, up from the 1.4% sequential growth posted in the first quarter.
Its overall exports in the first half of the year inched up 0.9% year on year to $1,062bn, while imports rose 1.5% to $959bn, official data showed.
Some 747,000 tonnes of PE and 399,000 tonnes of PP were brought into the country last month.
Comparing the numbers with the official data for May imports, June 2014 PE imports decreased by 4.11%, while PP imports were down by 1.24%.
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections