Decline in Asian naphtha prices seems likely to end

09-Nov-06

Naphtha prices in Asia have fallen relative to crude because supply has outpaced the growth in demand. Exports from India have risen by 75% in August from a year earlier to as much as 7,00,000 tons, as refiners boosted crude processing capacity and as power plants switched to natural gas. As Asian demand, supported by rising demand in South Korea, catches up with the rise in supply, naphtha prices are expected to stabilize against the price of crude. Shipments of naphtha from India are estimated to rise after start up of Essar Oil Ltd.s' 2,20,000 bpd refinery at Vadinar, Gujarat, resulting in a 1,00,000 ton a month increase in exports. However this rise is expected to be absorbed as Petrochemical companies across South Korea and Singapore boost ethylene capacity to tap China's demand for chemicals. Yeochun NCC plans to expand ethylene capacity by 20% to 1.77 million ton in the fourth quarter. GS Caltex, South Korea's second-largest oil refiner, started operations at a 70,000 bpd naphtha splitter in July, raising naphtha purchases by nine cargoes a month, or about 2,30,000 ton. South Korea's LG Chemical Ltd and Taiwan's Formosa Petrochemical Corp are among companies that will raise naphtha purchases next year. LG Chemical plans to boost its ethylene capacity by 54.2% to 7,40,000 ton in the second quarter. Formosa Petrochemical will begin a 1.2 million tpa cracker at its Mailiao refinery and petrochemical complex next year. This is expected to end a four-month decline as demand from Asian petrochemical companies rises to absorb surplus exports from India. As per data available, naphtha's premiums to Brent reached US$75 a metric ton on Monday, 35% lower than the June 21 record of $115.50 a ton. The price difference between naphtha and Brent crude is estimated to remain at current levels for the rest of the year. Prices of naphtha relative to crude, or the crack spread, fell to $55 a tonne in early September, the lowest this year.