Unexpected demand from China sustains strength in naphtha strength despite arbitrage cargoes

16-Nov-10

China is seeking additional quantities of naphtha for the last quarter of 2010, probably extending the bull-run until Q1 2011. Unipec, trading arm of top Chinese oil firm Sinopec has bought at least three medium-range cargoes of 30,000 tons each, for Q4 delivery mainly into Eastern China, as per Reuters. It is also seeking at least another 55,000 tons for December delivery. This unexpected demand from Unipec has sustained the naphtha strength despite arbitrage cargoes coming in. Sinopec is seeking the feedstock to keep its crackers in Shanghai, Ningbo, Maoming and Guangzhou running at normal rates. The bullish sentiment has drawn at least 85,000 tons of naphtha for December from Europe and USA to Asia after a two-month absence, while Syrian cargoes have been streaming in since the third quarter. In total, some 150,000 tons will land in Asia in December from Europe, Syria and the US and traders estimated that volume could double to 300,000 tons on strong regional demand. Cracks from refining Brent crude into naphtha, neared a two-week high at US$153/ton, maintaining the year-long strength in a market. The naphtha market has rebounded from historical lows of minus US$189.75/ton seen in November 2008, but remains below the year's peak of US$178/ton in mid-January. Any move by the Chinese government to ease its power sector curbs after the deadline could help cool down the heated market. China will likely continue to buy and stockpile for Q1-2011 as safety measures. China turned into a net importer of naphtha last year following an increase in the number of petrochemical plants. In 2009, China was net short of nearly 1.8 mln tons of naphtha, and up to January-September 2010, it was net short of close to 1.2 mln tons (average of 133,000 tons a month).