Asian naphtha market slips into contango for second time in a month

11-Sep-14

The Asian naphtha physical market once again flipped into a contango structure on September 9 -- the second time in less than a month, amid persistent cargo length at the front of the market that is exerting downward pressure, as per traders in Platts. At the Asian close Tuesday, the prompt CFR Japan H2-October/H1-November physical cargo spread was assessed at minus 25 cents/mt, down from parity on Monday. The physical market was last in negative territory on August 18, when the then prompt CFR Japan H1-October/H2-October spread was assessed at minus 50 cents/mt, Platts data shows. That contango lasted for a day. Asian naphtha market participants said the ample availability of naphtha, especially at the prompt, was causing the front of the market to buckle under pressure. "It's definitely looking bearish, nobody can doubt that there's too much supply around," a trader said. "Crude is weak, European naphtha is weak, it's not bullish at all," he said. How long the contango structure is sustained this time is hard to say and depends on how fast cargoes can be cleared, sources said. It could not be ascertained how much surplus volume remains in the Asian naphtha market but sources estimate October-arrival Western arbitrage volumes into Asia at around 1.5-1.7 million mt. For most of H1-2014, monthly average arbitrage volumes into Asia have hovered at around 1.3-1.5 million mt. However in August Asia received around 1.75 million mt of arbitrage material and September his is expected to rise to 2 million mt, respectively, with the swell in supply weighing down on the market. Even as October supplies remain plentiful, traders said the Asian naphtha market continues to see limited activity amid a bearish outlook. One source said spot demand is likely to remain limited as most end-users are able to meet their requirements for second-half October and November through term contracts.