Asian naphtha market gears up for challenging round of negotiations with Middle Eastern suppliers

Asian naphtha market participants are bracing themselves for what some term a challenging round of negotiations with Middle Eastern suppliers, as buyers anticipate a possible hike in premiums for the April 2012-March 2013 term cycle, as per Platts. Both Kuwait Petroleum Corp. and Abu Dhabi National Oil Co. will be holding talks with their term buyers in Singapore and Abu Dhabi, respectively, over February 6-10, while Qatar's Tasweeq followed the tender process. All three hope to tie up volumes with buyers for the 12 months beginning April 2012. Market sources said the upcoming term talks would likely see higher premiums offered by sellers due to the current firmness in the Asian naphtha market, which has been supported since before the Lunar New Year on the back of news of refinery outages in the US and Europe. But market participants said that chain of events in the West created a twofold effect, firstly sparking off an initial kneejerk reaction in global naphtha markets that saw it rallying upward, but which then had the result of actually causing naphtha physical supply shortages when arbitrage economics between the West and East narrowed to unworkable levels. A surge in gasoline was followed by rise in naphtha- because otherwise, the gasoline-naphtha spread would become too wide. Lack of supply from the West has led to stiffer competition for existing spot naphtha barrels from Asian suppliers, with regional buyers having to pay up in order to secure cargoes. This has been reflected in firm FOB India spot naphtha tenders, which saw ONGC and MRPL selling cargoes at premiums of over US$32/mt to the Mean of Platts Arab Gulf naphtha assessments earlier this week. Cargoes offered by the two refiners before that had been averaging around a premium of $20-25/mt to MOPAG naphtha assessments. For its April 2011-March 2012 cycle, KPC settled on a premium of US$20/mt and US$18.50/mt to MOPAG naphtha assessments for the supply of light and full range naphtha, respectively, while ADNOC fixed its term premiums for paraffinic, low sulfur and splitter naphtha at US$20/mt, US$18.50/mt and US$17.50/mt, priced to the ADNOC formula, which takes an average of FOB Arab Gulf naphtha assessments from Platts and Petroleum Argus. No price details for Tasweeq's April 2011-March 2012 term contracts for plant condensate and full range naphtha were available. For the upcoming term, Tasweeq is offering 360,000-600,000 mt each of plant condensate and full range naphtha via tenders with cargo size of 30,000-50,000 mt/month to be declared by the buyer at the time of bid. The tenders close February 13, with validity till February 16.