Market and product

SINGAPORE (ICIS)--Asian naphtha prices are expected to succumb to downward pressure, if not for global Brent crude futures ticking at above $98/bbl (€73.5/bbl), as an armada of deep-sea supply found its way to this region, traders said on Tuesday.

Asia’s naphtha crack spread versus Brent crude futures plunged to a three-month low of $126.60/tonne late last week before rebounding to $154.93/bbl on Monday’s close, after Taiwan’s Formosa Petrochemical Corp (FPCC) snapped up 150,000 tonnes of spot naphtha for second-half February delivery, up from its previous purchase of 75,000-100,000 tonnes for first half of February.

But the premium, albeit undisclosed, was lower than Formosa’s earlier purchases, which were secured at market quotes plus $6/tonne CFR (cost and freight) Japan, traders said.

And the crack spread was significantly weaker compared with $189.85/tonne achieved earlier this year, and the naphtha’s spread between first-half March and first-half April contracts waned to $5/tonne in backwardation from plus $7.50/tonne in the same period, ICIS data showed.

“Asia is receiving a lot of supply from the West. I expect spot premiums to fall further,” said one trader.

Because of poor gasoline economics, refiners in Europe were compelled to move bigger-than-expected naphtha volumes to Asia, traders said.

Petrochemical producers had tapped on cheaper feedstock liquefied petroleum gas (LPG) instead of naphtha, prompting shipments eastwards.

As much as 500,000 tonnes of Western arbitrage shipments would land in Asia in February, deepening the flood of supply in Asia. Already, the market was awash with light distillates.

Reflecting hefty stockpiles, onshore inventories of light distillates in Singapore jumped 1.217m barrels in the week ended 12 January to 10.592m barrels, industry data showed. Light distillates included naphtha, gasoline and reformate.

Meanwhile, a string of naphtha tenders garnered lower premiums and that shed light on a weakening market, traders said.

“Premiums were getting modest,” said another trader.

Kuwait Petroleum sold by tender 150,000 tonnes of naphtha at a premium of close to $19/ton to Middle East quotes FOB (free on board), for loading on 14-25 February.

Prices were off from previous export tenders from the Middle East, which were sealed at premiums of above $20/tonne to Middle East quotes FOB, traders said.

The market was further dampened following a brief cracker snag faced by South Korea’s Yeochun NCC (YNCC) late last week. Although YNCC restarted its 578,000 tonne/year No 2 naphtha cracker on Friday after it was shut on Thursday because of a fire, the run rates would be cut to 85 - 90% for the next three months.

YNCC would curtail its spot naphtha purchases for the duration, in tandem with the lower run rates. The company would buy just five to six spot naphtha cargoes each month, down from the usual eight cargoes a month. Each cargo is 25,000 tonnes.

“The market is heading for a downturn ahead of peak cracker maintenance in the second quarter,” a trader said.