An unexpected fall in Japan's naphtha consumption following the shutdown of a quarter of its petrochemical capacity will boost supplies in Asia far in excess of demand, hurting exporters as far away as Europe, as per Reuters.
Premiums in Asia had surged to their highest in a year, to US$25.20/ton on a free on board basis. This was partly on expectations of supplies falling in April as key refiners in the Middle East shut for maintenance. Now with requirements in Japan slumping, and shipments of the fuel getting diverted or delayed, the market will reverse. The overhang is expected to continue for at least a few weeks, as Japan- one of Asia's biggest consumers stays away from the market. This will force Europe, typically a top Western naphtha supplier to Asia, to look elsewhere for buyers. Europe supplied an average of 330,000-350,000 tons of naphtha a month to Asia last year. Three Japan-bound vessels from the Middle East to lift 205,000 tons of naphtha in late March - early April have already been cancelled. Furthermore, Japan plans to ramp up production at oil refineries to restore availability of fuels such as gasoline and diesel, boosting naphtha output as well. With cracker output down in the country, most of the naphtha may find its way to the Asian regional market. Japan has lost about 9,700 megawatts of nuclear capacity (about 20% of the total), and an estimated 10,800 MW of thermal generation- hence analysts expect cracker runs to remain low for weeks to come, keeping naphtha supplies far in excess of demand.
Japan imports more than half its naphtha requirement, or an average of 1.4 mln tons a month. It is now shedding around 20,000 tons of demand a day, or 140,000 tons a week. Loss of demand from Japan will not be enough to offset the lower supplies from the Gulf caused by scheduled refinery maintenance in Saudi Arabia, Kuwait, and an unplanned partial shutdown of Bahrain Petroleum Co (BAPCO) due to political unrest.