Market fundamentals will get balanced as India maintains September naphtha exports at approximately 850,000 tons, amid healthy demand and expected reduced supplies from the Middle East, as per Reuters. Supplies from the Middle East are expected to be lower in the month of October due to maintenance at ADNOC’s splitters in the UAE. One maintenance shutdown is to last for a month and another for 10 days, cutting off total export volumes by 150,000-170,000 tons during the shutdown period. Also supporting prices is Formosa Petrochemical’s purchase of 200,000-230,000 tons for September arrival in a span of a week despite the continued shutdown of its 700,000 tpa No. 1 cracker. The strong sentiment was also driven by the tightly shut West-East arbitrage window after more than 1 mln tons of naphtha arrived in Asia between May and July.
Market sentiments took a hit after about 1 mln tons of Middle Eastern naphtha found its way into the spot markets and was sold for July-August loading. By the middle of last week, naphtha cracks spiked to a two and a half week highs at US$114.5/ton premium, vs the lowest level of 2010 on July 19 at US$50.6/ton premium. Indian premiums range between US$14-16/ton to Middle East quotes for cargoes slated for September lifting. Several market players expect the uptrend in Asia to be short-lived with a limited ascent in Indian premiums. This is because an unusual rise in prices amid unchanged fundamentals. Saudi Aramco, ADNOC, Tasweeq and Kuwait Petroleum Corp (KPC) are the Gulf producers that have sold over 500,000 tons of spot naphtha for September loading. The West-East arbitrage window could reopen as the Asian open-spec naphtha differential to Northwest Europe prices were at US$25.50/ton last week. The West-East arbitrage door technically opens when Asian prices are around $27-28/ton above levels in Northwest Europe, although traders also have to consider freight rates.