Downtrend starts in naphtha in Asia as demand falls and supply rises

11-Nov-13

Asia’s naphtha market may be undermined by ebbing prompt demand, while supply is being augmented by an influx of deep-sea western supply and increased imports from the Middle East, as per traders in ICIS. At midday, open-spec naphtha prices for H2-December contract lost US$10-11/ton from Thursday to US$910.50-913.50/ton CFR Japan. As bullish news discontinues, the overheated market is under pressure from the bears. Profit-taking seen throughout the week caused prices to decline. At noon, naphtha prices have come off by 3.3% from the high recorded this week at US$942.50-944.50/ton CFR Japan on 4 November, ICIS data showed. The naphtha crack spread weakened to US$137.03/ton against December Brent crude futures on 7 November, down from US$145.20/ton on 4 November. Asia is slated to receive 1.3-1.5 mln tons of deep-sea naphtha flows from the western markets in December. Influx of increased arbitrage volumes is expected from northwest Europe, the Mediterranean, the US and Russia. The volumes were higher from the November levels of 1 mln tons, owing to a widening east-west spread of late. Western naphtha flows have increased because the naphtha blending margin into gasoline in Europe was at its worst since 2010. The surge in supply from the West and the Middle East is now overshadowing a reduction in Indian naphtha exports within Asia. Naphtha exports from India in November were being lowered to 650,000-700,000 tons, down from 750,000 tons previously. Prompt demand for naphtha in Asia was subdued in the week, following a flurry of buying in the previous week.