Asia is likely to see a lower pool of naphtha imports from Europe, as freight costs increase and premiums get stronger, restricting fresh bookings, as per ICIS. The arbitrage window was effectively closed, as the economics of the East-West spread had narrowed to US$17-18/ton from around US$22/ton. This is expected to further pressurize naphtha supply in Asia, where robust downstream petrochemicals demand led by China has seen naphtha price hikes. Benchmark naphtha crack spread closed at US$173.60/ton against Brent crude futures on Thursday, the highest since 22 December.
Though, 1.2-1.3 mln tons of naphtha is estimated to land in Asia during January and February, volumes for March arrivals are lacking. European crackers are using more naphtha as chilly temperatures has led to a greater usage of liquefied petroleum gas (LPG). Europe is also facing reduced inventory levels on lower supplies partly due to refinery maintenance work in the West. The costlier bookings of long-ranged vessels are also responsible for the arbitrage window closure. Freight costs from the Middle East to Japan have gone up, so owners are trying to push up the shipping rates for Europe-East route.
Apart from Europe, refinery maintenance in the Middle East also hampered Mideast naphtha flows to Asia, where petrochemicals demand remained bullish with most Northeast Asian crackers operating at full tilt to take advantage of the robust margins. Although the naphtha market will see a seasonal demand lull after the Lunar New Year, especially with many ethylene producers embarking on regular maintenance in March, demand for the feedstock will continue to be strong thereafter amid a promising macro-economy.