Attractive olefin margins, weak gasoline market in Asia, trigger overhang in aromatics market

Attractive margins for olefins and a weak gasoline market in Asia, triggered an overhang in the Asian aromatics market in the first quarter of this year, as per Platts. "The bullish ethylene and propylene markets prompted refiners to keep high operating rates at naphtha splitters so as to produce more light naphtha for steam crackers (for producing ethylene and propylene)," a trader said. Asian ethylene and propylene margins against naphtha remained in positive territory through the first quarter. The FOB Korea weekly ethylene margin hit an year-to-date high of US$185/mt on January 17, and FOB Korea propylene margin also touched an year-to-date high of US$263.63/mt on the same day, Platts data showed. The FOB Korea weekly ethylene margin was assessed at US$1375/mt March 28 and FOB Korea propylene margin was assessed at US$1325/mt March 31. The Asian ethylene market found support in the first quarter from lack of supply from the Middle East and massive turnarounds at regional plants, according to market sources. The naphtha splitters refine full-range naphtha into light and heavy naphtha in a 55:45 ratio. As splitter operating rates were increased to produce more light naphtha, volume of heavy naphtha being produced also increased. But, there was not enough consumption of heavy naphtha as demand for most aromatics -- which are produced from heavy naphtha -- remained lackluster in Asia in the first quarter. "In an effort to consume the heavy naphtha stocks, many refiners kept run rates at reformers at high levels [producing more aromatics and] ... in turn, [putting] pressure on aromatic prices," the trader said. Run rates at reformers were also kept high to produce benzene, which found strong support during the first quarter from strong demand from the US. Asian isomer-grade mixed xylene, paraxylene and toluene prices fell during the quarter. Isomer-MX prices were down 10.9% from US$1201/mt FOB Korea on January 2 to US$1070.50/mt FOB Korea March 31, while Asian PX and toluene prices were down 12.8% and 9.3% respectively. Benzene also fell, but relatively less -- down 6.6% over the period. Another factor pulling down aromatics was weak gasoline demand which meant reformate was being used to produce aromatics instead of being blended with gasoline, according to market sources. This further increased aromatics supply in Asia in the first quarter. "A bearish gasoline market in Asia led refiners to [produce] more reformate to [be used for producing aromatics] rather than to blend gasoline," a trader said. Bearish gasoline demand had resulted in high reformate inventory at refineries. But as refiners can still make a slight profit by "producing aromatics" from the reformate instead of gasoline, "they are still running aromatics plants at high rates," a refinery source said.