Ethylene recovers in Asia: naphtha cracking margins turn positive

31-Aug-10

Naphtha cracking margins in Asia entered positive territory for the first time since May 31, driven by a sharp rebound in spot ethylene prices, as per Platts. Late Thursday, Northeast Asian naphtha cracking margins were pegged at +$0.5/mt, compared with -$5/mt about a week ago. In Southeast Asia, the margins turned positive three days before the NE Asian markets, at +$7.9/mt, the first time since June 3. A recovery in Asian ethylene prices commenced in the middle of the month as end-users actively started seeking spot ethylene cargoes for downstream production, especially for monoethylene glycol amid good margins. The Asian ethylene market has become more bullish this week, as multiple unplanned steam cracker outages in the area tightened the spot market. Japan's Mitsui Chemicals shut its 600,000 tpa naphtha cracker at Chiba, eastern Japan, due to a mechanical problem. In Singapore, Shell shut its 800,000 tpa naphtha cracker on Tuesday, that was restarted the next day, but continues operating at low run rates. The unplanned shutdown of Mitsui Chemicals tightened ethylene supplies in the Chiba area, and is expected to impact exports. Shell is speculated to step into the market to buy spot ethylene cargoes to maintain high MEG plant operating rates. Many market players opine that the Asian ethylene market would be capped soon amid quickly-rising spot supplies from the Middle East, especially from Iran. According to a shipping report, eight spot cargoes, amounting 36,600 mt, are fixed to be loaded by Iranian trading house Petrochemical Commercial Co. between the end of August and early September. The total amount of 36,600 mt is equivalent of 10 standard-sized cargoes in Asia. But so far, the destination of the cargoes is still unclear. Until the last week, all Iranian cargoes moved to Europe, where spot ethylene prices are pegged higher than Asia. Now it is getting more and more attractive for traders to move Iranian cargoes to Asia as the location spread between Europe and Asia is quickly narrowing.