Asia's naphtha backwardation is likely to strengthen on expectations of demand rise with the possible overdue restart of Formosa Petrochemical Corp (FPCC)'s 700,000 tpa No 1 naphtha cracker at Mailiao sometime in September, as per ICIS.
The time spread between the H1-October and H1-November contracts was assessed at US$6/ton (€4.20/ton) on Thursday, the strongest since 16 May when the inter-month spread was a dollar higher. Naphtha crack spread vs October Brent crude futures was valued at US$135.60/ton, rising by over six dollars from the previous week.
Demand is expected to outpace supply. The fact that FPCC is gradually restarting crude distillation units at the 540,000 bpd refinery at Mailiao, is a positive sign for resumption of operations. FPCC shut the refinery and related units entirely because of a fire in end-July.
The arbitrage window is closed given a weak east-west spread indicating limited inflows from Europe. Indian refineries are curbing naphtha exports for September amid several plant turnarounds, with naphtha shipments being reduced to 850,000 tons from levels at above 900,000 tons in August.
Brazil is pulling naphtha supplies from Europe for gasoline blending as a result of a shortfall of ethanol supply. Hence European naphtha is moving to to Brazil instead of Asia.