Market and product
Asia naphtha seen sluggish, market remains in contango
At midday, open-spec naphtha prices stood at $736.50-739.50/tonne CFR (cost and freight) Japan, representing a slight rebound from heavy losses last week, according to ICIS data.
Inundated with supply, the naphtha market saw prices plummeting in recent trading sessions, particularly during the week ended 10 October, when prices slumped by $86.50/tonne from a week earlier to $729.50-731.50/tonne CFR Japan, ICIS data showed.
“The market is not promising,” said one trader.
Since 10 September, the forward curve saw naphtha paper prices rising above the physical values as the market slid into a contango, ICIS data showed.
A contango refers to front-month prices being lower than the forward months in a bearish market.
Usually for the November trading month, physical prices are traded above paper values unless the market is in a sluggish state.
At the close of trade on 13 October, physical naphtha prices were assessed at $724.00-726.00/tonne CFR Japan for the second half of November. The November paper prices were traded at $741/tonne, highlighting a gaping discount of physical values to swaps, ICIS data showed.
In a sign of bearish fundamentals, a number of arbitrage naphtha vessels from Europe are sailing a longer route around the Cape of Good Hope, instead of the typical route of crossing the Suez, to save on freight costs, the traders said.
In any case, there is no rush in sending cargoes from the West to the East, where supply is flooding, they said.
Asia-bound western arbitrage naphtha supply has swelled to 1.12m tonnes for arrival in November, traders said.
The volume – hailing from western Europe, Russia and the US – remains hefty for the Asian markets.
Deep-sea supply may continue to increase amid reduced demand in Europe.
Asia is receiving some 1.6m-1.7m tonnes of October-delivered arbitrage naphtha. For September, there was 2.0m tonnes of arbitrage supply bound for Asia.
Meanwhile, crude prices have nosedived, with Brent crude pushing to its lowest level in four years, amid an oversupplied market and signals OPEC members are focussed on competing for market share rather than cutting production.
At midday, Brent crude futures were down 74 cents/bbl to $88.15/bbl.
The second-half November/second-half December naphtha spread was in a deeper contango of $7/tonne on 13 October, compared with a contango of $6/tonne on 10 October, according to ICIS.
The naphtha crack spread, or the difference between front-month naphtha prices against ICE Brent crude futures, narrowed to $63.95/tonne on 13 October from $113.75/tonne on 7 October, ICIS data showed.
While Asian crackers are broadly being operated at high rates given high naphtha-based ethylene margins of $689/tonne NE (northeast) Asia during the week ended 10 October, there are growing concerns over weakening downstream demand amid a slowing Chinese economy.
Paraxylene (PX) spot prices were under downward pressure, dragged down by falling prices in the upstream crude futures and naphtha markets.
Unfavourable global conditions, coupled with the International Monetary Fund’s (IMF) cuts in economic growth forecasts for the world economy this year, weighed heavily in market sentiment.
Dwindling prices in the downstream purified terephthalic acid (PTA) markets also pulled down the prices of PX prices.
Spot PX prices fell by $83-88/tonne during the week ended 10 October to $1,100-1,105/tonne FOB Korea, compared with $1,245-1,248/tonne FOB Korea four weeks ago, ICIS data showed.
Ethylene prices, on the other hand, were assessed at $1,430-1,450/tonne CFR NE Asia on 13 October, compared with $1,550-1,555/tonne CFR NE Asia, ICIS data showed.
Buyers were largely taking a wait-and-see stance amid concerns that the poor performance of the oil market would undermine the prices of ethylene and downstream products.
