Most Asian naphtha crackers and downstream derivatives continue to operate at near full capacity

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.
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