Asia’s naphtha prices expected to gain on rising PE, prospects of inventory stock-up

Asia’s naphtha prices are expected to gain from rising downstream polyethylene (PE) prices, amid prospects of inventory stock piling ahead of the Lunar New Year in early 2013 in China, as per ICIS. The Lunar New Year holiday will take place on 9-15 February 2013 in China. Asia’s open-spec naphtha prices rose by US$14-15/ton (€11-12/ton) to US$951-954/ton CFR (cost & freight) Japan last week. Integrated northeast Asian PE margins rebounded in the week ended 9 November, with low density polyethylene (LDPE) margins rising by US$86/ton to US$64/ton and high density polyethylene (HDPE) margins by US$65/ton to US$80/ton, because of lower feedstock costs and firmer polymer prices, according to ICIS weekly margin report. Naphtha prices weakened by US$19/ton to US$937-939/ton CFR Japan in the week ended 9 November, reducing feedstock costs by 2%. A week-on-week drop in Brent futures at the close of Asian trading on 9 November had undermined Asia’s naphtha prices, according to ICIS data. Asia’s LDPE prices rose by US$20-30/ton in the week ended 9 November to US$1265-1360/ton CFR China. Many traders and end-users have been maintaining low inventories this year because of the uncertain global economic outlook. News emerged in the previous week that Iran has exempted PE from the proposed export ban. Some importers and suppliers expected regional PE prices to be boosted if Iran had banned PE export, because Iran is a major exporter of HDPE and LDPE to China. Some traders expect China to restock on plastics resins ahead of the holiday season in early 2013. However, others remain concerned about the lack of significant improvement in downstream demand. Meanwhile, the naphtha market continues to stay in a steep backwardation, signalling a strong market buoyed by tight prompt supply. The intermonth spread between the naphtha contracts for H2-December and H2-January widened to a steep backwardation of US$19/ton on 9 November, compared with a backwardation of US$18/ton in the previous week. The backwardation is at its widest level since US$28/ton seen on 15 May 2012. Some traders said the tight supply situation may ease in the coming weeks because of inflows of deep-sea material from Europe and the US that totalled around 900,000 tons. Others argued that robust demand from South Korean and Taiwanese crackers can easily soak up the barrels. The premiums awarded in the spate of tenders last week fetched high levels in reflection of a strong market, traders said.