Naphtha prices have been soaring in Asia in line with a crude price rally, limited arbitrage volumes and short-covering activity in the Asian naphtha market. As per Platts, Asian petrochemical producers are mulling a switch from naphtha to LPG as a cracking feedstock.
In North Asia and Southeast Asia, naphtha is the primary feedstock of choice for cracker operators, but end-users switch to LPG (comprising propane and butane) as a cracking alternative if the LPG price is around 90% or lower to that of naphtha, or when LPG becomes around US$50/MT cheaper. At the Asian close Wednesday, CFR Japan propane and butane prices for delivery over H2-April were assessed at US$880/mt and US$935/mt respectively, while H2-April naphtha was assessed at US$991.50/mt CFR Japan, Platts data showed. This results in a naphtha-propane spread of US$111.50/mt and a naphtha-butane price spread of US$56.50/mt, which makes it more economical to crack LPG.
Depending on refinery configurations, petrochemical producers can swing to using LPG as 10-40% of total feedstock, in varying proportions of propane and butane. Since mid-February, Asian naphtha prices are rising amid spikes in Western crude benchmark prices, limited arbitrage volumes from the West and short covering activities. On February 24, benchmark naphtha CFR Japan flatprice reached US$986.88/mt (a 29-month high) causing buyers to defer naphtha purchases as cracking margins looked increasingly slender.
Taiwan's Formosa Petrochemical is believed to be switching to LPG as an alternative cracking feedstock over March and April, along with two other Asian cracker operators. However, the impact of LPG creeping into the naphtha pool is expected to be limited due to an aggressive cracker turnaround schedule that sets in over March-May in North Asia.
A large-scale switch to LPG is unlikely due to fat margins for butadiene producers which currently stand around US$1300/mt, Platts data showed. The butadiene yield from naphtha is about 18% but only around 9% for LPG, thereby making the latter less attractive as a feedstock for producers wanting to maximise butadiene output.