Decline in Asian naphtha prices amid surplus stock and dwindling demand

14-Sep-10

Amid surplus stock and dwindling demand, Asian naphtha prices are beginning to decline. Demand has dwindled as Asia’s top spot naphtha buyer, Formosa Petrochemical Corp, did not issue a tender to seek the petrochemical feedstock ahead of a major cracker shutdown. As per ICIS, the spread between H2-October and H2-November contracts flipped to a contango of minus 50 cents/bbl late last week, and has remained at this level at the start of the week. The spread was valued at plus US$2.50/ton (€1.98/ton) in backwardation earlier this month. Backwardation refers to a market where spot prices are higher than future prices, representing strong demand for prompt cargoes. Contango refers to a market where spot prices are lower than future prices, signifying weak demand for prompt cargoes. H2-October naphtha crack spread against October ICE Brent crude futures weakened to US$101.20/ton from US$117.08/ton in early September. September cargoes on offer have no takers and demand will slow down further the prompt market is long in supply. While the arbitrage window to ship European naphtha to Asia remained shut, the old cargoes of 100,000-150,000 tons of Mediterranean naphtha, due to land in Asia in October, is faced with problems in securing buyers.