Most naphtha crackers in Asia, with downstream derivatives, continue to operate at near full capacity or higher, thanks to a firm integrated margin, as per ICIS. However, sentiment may turn bearish in the face of an ethylene price slump.
The integrated polyethylene (PE) margin held firm at US$235/ton (€169/ton) in the week ended 5 November. Ethylene or steam cracker margin plummeted to US$34/ton NE Asia in the same period, vs US$72/ton the previous week and US$252/ton in September. Since crude has moved substantially, while ethylene is the same, margins seem to be in trouble. As a rule of thumb, cracking operators may enjoy full cost recovery if the spread between naphtha and ethylene hovers at a minimum of US$250/ton. Meanwhile USA's quantitative easing policy (QE2) to flush the market with more dollars to stimulate spending has resulted in a jump in commodity and oil prices, which in turn pushed up naphtha prices to a two-year high. Asia naphtha prices topped US$800/ton on Monday, the highest level since US$814/ton seen in the week ended 26 September 2008.
Ethylene prices fell to US$980-1000/ton CFR NE Asia last week, against month-ago levels of US$1110-1150/ton due to a supply glut from the Middle East. Regional integrated naphtha crackers are running at high rates because of a healthy polymers market, adding to the flood of ethylene supply. Indonesia's Chandra Asri cut operating rates at its 600,000 tpa naphtha cracker in West Java to 75-80% since last week, partly due to squeezed margins from weakening ethylene spot prices. Integrated crackers such as Maruzen Petrochemical's 520,000 tpa cracker in Chiba, Japan, continue to run at 100%. Mitsubishi Chemical is operating its three naphtha crackers, with a total capacity of 1.278 mln tpa at near full tilt. Thailand's Integrated Refinery & Petrochemical Complex (IRPC) is currently running its 350,000 tpa naphtha cracker in Rayong at 95% of its nameplate capacity.
The current strength in naphtha is considered temporary, as the market has been buoyed by low shipments from the Middle East and India where a raft of refinery maintenance is under way. India is expected to export around 700,000 tons of naphtha in November versus the monthly average of 800,000-900,000 tons.