Asian naphtha prices likely to continue waning for the rest of 2010

19-Jul-10

In view of a fleet of spot shipments from the Middle East amid lacklustre demand in the region, Asian naphtha prices are likely to continue waning for the rest of the year, as per ICIS news. The demand situation was compounded with reduced demand from Formosa Petrochemical due to a recent outage at that forced the company to take off line its 700,000 tpa No 1 cracker in Mailiao for about 2-3 months. As a result of this reduced demand at Formosa, the Taiwanese major has requested term suppliers to postpone delivery of naphtha supply from August to December to ease the high inventory problem. On signs of poor market conditions, the price spread between H1-September and H1-October contracts sank to a contango of US$7/ton from a contango of US$2/ton early last week, while the naphtha crack spread against Brent crude futures plunged to a 13-month low of US$60.20/ton, ICIS data showed. The deeper the contango, the worst the market gets. It is now a buyers market in Asia- South Korea’s LG Chem bought 25,000 tons of spot open-spec naphtha at a severely deep discount of US$12/ton to Japan quotes CFR, and 100,000 tons of spot open-spec naphtha for H1-August delivery, at discounts of US$4-5/ton to Japan quotes CFR. Hindustan Petroleum Corp (HPCL) awarded its export tender for 25,000 tons of paraffinic naphtha at US$3.50-5.00/ton below Middle East quotes FOB (free on board). The arbitrage economics, typically to move European naphtha to Asia, are not workable as prices are on a freefall. Middle East producers are heavily squeezed and are forced to reverse some arbitrage shipments to Europe, but at limited levels amid ample stocks in the West. Downstream ethylene prices weakened US$10-30/ton to US$860-870/ton CFR NE Asia, while the Asian toluene and xylenes market continued to wade in a glut. Current high operating rates of reformers at regional petrochemical facilities are also expected to keep the Asian aromatics market oversupplied through the rest of 2010. Additionally, a slowdown in Chinese economic growth in the second quarter signalled lower petrochemical demand from the world’s second-biggest energy consumer in the months ahead. Under the current market scenario, petrochemical margins are expected to continue to be poor, hence buyers are in nor rush to conclude deals.