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Asia naphtha crack at 6 month high on improved demand, short covering (25-10-2016)

Asian naphtha crack spreads soared to a six-month high and spot price differentials improved Friday amid rebounding demand stirred by the conclusion of the cracker maintenance season, a healthy gasoline blending market as well as short covering and hedging for CFR term cargoes, traders said in Platts. A stronger LPG market due to Q4 winter stockpiling has also made propane and butane less attractive petrochemical feedstock alternatives.

Naphtha supply, in abundance for most of this year due to excess exports from India and steady flows from the Middle East, is starting to be constricted, as Indian Oil Corp. phases out exports from the Paradip refinery due to the end-September startup of the gasoline-making reformer at the complex, after a near nine-month outage, traders said.
The CFR Japan naphtha crack versus the front-month December ICE Brent marker jumped by US$11.03/mt day on day to US$69.68/mt Friday, the highest since hitting US$70.10/mt on April 25, S&P Global Platts data showed.
The persistently firm European market continued to shut the Western arbitrage, despite the recent rally in Asia, keeping the East/West spread at US$8.30/mt, the widest in a month but still off the US$20/mt mark needed to prise the arbitrage open.
The base-load monthly flows from Europe to the traditionally net-short Asian market have been limited to below 700,000 mt during September and October. Some sources said the November program is expected to hover at that level, versus 1 -1.5 mln mt a month last year. "It's driven by the West and Asia front month cleared the overhangs," one market source said.

News that BASF will restart its two Ludwigshafen steam crackers in the coming days also offered relief to the market.  A Western trader said: "The market is stronger due to traders short covering. And some hedging for CFR term cargoes as well, I believe." A third trader said that, when the market was in a steep contango structure almost two months ago, Northeast Asian end-users had "rushed to buy cargoes on a term basis and traders sold without securing cargoes. Traders built up short positions first and have to cover for their shorts later." "So, the potential buying interest persists in the market," he said, adding that the strength seen for the fourth quarter would last through the first quarter.

End-users such as South Korea's Yeochun Naphtha Cracking Center and Lotte Chemical, Japan's Mitsubishi Chemical and refiner Idemitsu, Taiwan's Formosa Petrochemical and Thailand's Siam Cement Group have finalized annual or half- yearly term contracts for 2017 during the third quarter at discounts of between US$6-8/mt the Mean of Platts Japan naphtha assessments. YNCC, South Korea's top ethylene producer, and Lotte Chemical continued to show appetite for spot cargoes for November and December deliveries amid robust ethylene cracks, narrowing the CFR Korea discounts.


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