Asia’s naphtha may face head south on supply glut

Asia’s naphtha prices may be undermined on the back of bloated supply and weakening plastics demand, as per ICIS. H2-June naphtha prices were assessed lower at US$825.50-827.50/ton CFR Japan on 2 May but they rebounded to US$842-845/ton CFR Japan on Friday morning in line with global crude oil futures. Naphtha crack spread against June Brent crude futures narrowed to US$73.35/ton on 2 May, down compared with US$85.70/ton in the previous trading session. Meanwhile, the naphtha backwardation weakened to US$12/ton. “The naphtha market is getting bearish. There are a lot of arbitrage cargoes coming in. The Asian refineries are returning from [active] maintenance, while the chemical products prices are not so good,” said one trader. Around 1 mln tons of deep-sea naphtha from Europe is expected to head to Asia in May, for delivery in June. Most of the naphtha volumes are heading from the Mediterranean to Asia. A favourable east-west spread of US$28/ton between northwest Europe to Asia earlier in the week had led to vessels being booked from the region to Asia. Meanwhile, the arbitrage from the Mediterranean to Asia is still open, said one source. However, the deep-sea volumes were too much for Asia where the demand outlets are limited amid weakening petrochemical demand, traders said. Around 600,000 tons/month of naphtha move from Europe to Asia on a regular basis, and any volumes above that volume signals a flooding of deep-sea material in Asia. To compound the situation, India’s refiners are raising their naphtha exports to an estimated 700,000-800,000 tons in May, as compared to shipments of 650,000-700,000 tons in April. Indian refiners are likely to be operating their plants at high rates amid less refinery maintenance scheduled this month. The end of active refinery maintenance in India supported a higher volume of Indian naphtha exports, traders said. “Most refinery turnaround [in India] has finished, so the exports are likely to have recovered,” one trader said. In addition, the gasoline blending demand for naphtha remains weak given ample stockpiles of the motor fuel, traders said. The naphtha spot premiums fell as a result amid such dismal market fundamentals.
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