Despite falling naphtha prices, naphtha cracks rise to three week highs in Asia

20-Sep-11

Naphtha prices in Asia dropped to a two-session low on Monday due to lower Brent crude prices, but cracks hovered around a three-week high on persistent healthy demand on the back of tighter supplies, as per Reuters. Gunvor has provisionally booked around 75,000 tons of naphtha from Tuapse, Russia, to arrive in Asia late October-early November to capitalise on healthy demand for heavy naphtha. The heavy grade Tuapse naphtha can fetch around US$14-15/ton premium from South Korea vs US$5-6/ton for open-spec grade. In a bid to cope with squeezed margins due to firm crude prices, refiners have reduced run rates or have shut plants to conduct maintenance. Reuters models showed refining margins have been negative across Europe, with some complex refineries in Northwest Europe just about breaking even. The most profitable gasoline margins have collapsed from almost US$12 a barrel at the start of September to US$2 a barrel mark. This is expected to continue to restrict barrels from Europe coming to Asia. Asia received an average 330,000 tons/month of Western naphtha in 2010. Expectations of lower supplies are to offset weaker demand in Taiwan. Formosa Petrochemical Corp has not restarted its 700,000 tpa No. 1 naphtha cracker as expected. The market is now dictated by demand for heavy naphtha rather than open-spec grade. Further delay in restart of Formosa’s cracker may have limited impact on sentiment. The price for front-month H1-November fell by eleven dollars to US$973/ton.