Bearish sentiments continue in Asian naphtha on sluggish petrochemical demand

25-Oct-11

Asia's naphtha price has dipped to a two-week low on Monday, while cracks hovered at a 15-month low and timespreads fell to their lowest in about three months on further deterioration of sentiment due to sluggish petrochemical demand, as per Reuters. China's manufacturing sector picked up moderately in October, snapping a three-month contraction and underscoring the resilience of the world's second-largest economy and top energy consumer, according to HSBC's China Flash Purchasing Managers' Index. Though this fuelled investors' optimism in crude futures trading, it failed to do the same for the naphtha market due to fears of more units cutting runs because of oversupply of petrochemicals, which are mainly from naphtha. Petrochemical prices are weak across the board from polymers to aromatics. A moderate production cut was seen in Japan as Japanese petrochemical makers try to combat the weak Chinese imports. A further reduction will not be surprising. South Korean petrochemical makers are usually the last in Asia to cut runs as they have better economy of scale due to its bigger capacity and more modern technology. Now, they too are under some pressure to trim runs if the petrochemical market fails to pick up.Naphtha cracks for H1-Decemberfell to US$57.25/ton, lowest since July 20, 2010.