Asia naphtha to stagger on weakening downstream demand and margins, volatile crude

07-Oct-11

Asia’s naphtha prices are likely to weaken on receding demand for key downstream petrochemicals, falling margins on products and continued volatility in crude values, as per ICIS. Mid week, naphtha prices in Asia closed at US$860-861/ton (€645-646/ton) CFR Japan - the weakest level since 27 June. At this point, naphtha crack spread vs November Brent crude futures narrowed to a two-month low of US$97.60/ton. The next day, naphtha prices inched up to US$866.50-869.50/ton CFR Japan on the back of overnight gains in global crude futures following the release of US government data confirming an unexpectedly large fall in domestic crude stocks. In Asian trade on Thursday, NYMEX crude and Brent crude softened but continued to trade above US$79/bbl and US$102/bbl levels, respectively. More naphtha cargoes are now available in the market and the premiums are narrowing, as a result margins are worsening and some petrochemical makers are already reducing run rates. Integrated LDPE margins fell by US$56/ton week on week to US$448/ton on 30 September, and HDPE margins lost US$67/ton to US$298/ton in the same period. Butadiene prices have dropped by 20.8% from four weeks ago, and demand from the downstream styrene butadiene rubber (SBR), butadiene rubber (BR) and acrylonitrile-butadiene-styrene (ABS) segments further dampened buying appetite. Spot prices of styrene monomer (SM) closed below US$1300/ton FOB Korea on Wednesday due to persistently weak demand in the region vs US$1350/ton FOB Korea on 30 September. This ca be attributed to weakness in overall market as the fourth quarter is a traditionally slow season for SM and downstream styrenics market. With the uncertain economic outlook in the US and ongoing sovereign debt crisis in the eurozone, demand for China-made products is expected to stay weak. Consequently, consumption of styrenic resins and SM has weakened this year. With ongoing outage and maintenance at several plants in Asia, SM supply is still ample as demand is poor. Prices are expected to ease further in the weeks ahead.