Asia naphtha price differentials may worsen on excessive cargo availability

Excessive cargo availability will continue to weigh on the Asian naphtha market, raising the possibility of a further decline in premiums on spot transactions, and a swing to discounts on some deals, as per traders in ICIS. Spot naphtha price differentials have weakened this week given the region's bloated supply despite stable-to-firm gasoline blending demand, and stable-to-soft petrochemical usage, they said. On Thursday morning, open-spec naphtha prices for H2-July delivery rose to US$866.50-869.50/ton CFR Japan, up by US$3.50-4.50/ton from Wednesday because of overnight crude oil gains. Asia, being a net importer of naphtha, tends to require around 800,000 tons of arbitrage naphtha each month. However, the surplus June-delivered arbitrage supplies from the western markets were too much, resulting in a spill-over of deliveries to July, traders said. “The prompt supply is too long,” said one trader. Another trader added: “It’s obviously oversupplied in June up to the first half of July in the east.” For June, 1.1-1.15 mln tons of deep-sea western naphtha supply were expected to arrive in Asia, with some of the second-half June volumes to be delivered in H1-July instead. The inflows will hail from northwest Europe, the Mediterranean, Russia and the US. Meanwhile, around 800,000 tons of arbitrage naphtha have been booked for July arrivals. Some cargoes may end up distressed given the demand outlets are not enough to absorb the supply, hence leading to a squeeze in price differentials. In addition, there are renewed concerns over an economic slowdown in China,. China released some economic data over the weekend indicating that the world’s second largest economy is showing more signs of slowing down. Spot naphtha deals during the week showed the strain on price differentials. South Korea’s Yeochun NCC (YNCC) has purchased two spot naphtha cargoes totalling 50,000 tons for delivery to Yeosu at a low-single premium, reflecting a bearish naphtha market. The cargoes for delivery in the second half of July fetched a premium of US$1.50/ton to Japan quotes CFR. YNCC last bought by tender around 400,000 tons of term naphtha supply for the period from July 2013 to June 2014, at a premium of US$7.75/ton to Japan quotes CFR. Another South Korean firm Lotte Chemical has bought 25,000 tons of full-range naphtha for delivery in the second half of July at a premium of US$3.50/ton to Japan quotes CFR. It purchased another 50,000 tons at a premium of US$4.50/ton to Japan quotes CFR for delivery to Daesan. Lotte previously bought 25,000 tons of spot naphtha supply for delivery to Yeosu in the H1-July, at a premium of US$10.50/ton to Japan quotes CFR. Malaysia’s Titan Chemicals, on the other hand, has bought 55,000 tons of spot full-range naphtha for delivery to Pasir Gudang on 11-15 July, at a discount of 50 cents to Japan quotes CFR. Titan Chemicals previously bought by tender 120,000-130,000 tons of term naphtha supply for delivery to Pasir Gudang from July 2013 to June 2014, at a premium of around 75 cents/ton to Japan quotes CFR on a 45-day pricing basis. India’s Bharat Petroleum Corp Ltd (BPCL) has sold by tender two naphtha cargoes totalling 73,000 tons to trading company Trafigura for loading in July, at generally weaker premiums. BPCL sold 35,000 tons of naphtha for loading from Kochi on 5-8 July at a premium of US$27/ton to Middle East quotes FOB, as well as 38,000 tons of naphtha for loading from Mumbai on 13-15 July at a premium of US$26/ton to Middle East quotes FOB.