Falling Japanese naphtha premium to NEW by almost US$12-13/mt

21-Aug-13

The premium of front-month naphtha CFR Japan cargo to CIF Northwest Europe cargoes -- the east/west -- has fallen to US$11/mt, down by US$13/mt over the last six weeks, putting pressure on the arbitrage from Europe to Asia, as per sources in Platts. The front month East/West spread was heard trading at US$11/mt in the European morning Tuesday, a significant fall from July 8 when it was trading around US$23/mt. Supplies have been ramped up from Middle East and India. Sources added that arrivals in Asia over September of around 1 million mt should be ample to supply the market. Upcoming petrochemical cracker maintenance season in Asia is expected to have a further dampening effect on demand. Naphtha-fed steam crackers due for turnaround are Japan's Mitsubishi Chemical and Taiwan's Formosa Petrochemical. Platts reported previously that Mitsubishi Chemical plans to shut its No. 2 steam cracker in Kashima on August 27 for a 50-day annual maintenance program. The unit is scheduled to be restarted mid-October. The No. 2 Kashima cracker is able to produce 476,000 m tpa of ethylene and 260,000 m tpa of propylene. Meanwhile, Formosa has scheduled turnaround for its No. 2 steam cracker to start on September 15 and which will last till the end of October. The No. 2 steam cracker is able to produce 1.03 mln tpa of ethylene, 515,000 m tpa propylene. Europe is long naphtha, with the majority of arbitrage cargoes heading to the short Asian market, therefore even with a shut arbitrage there will still be some cargoes heading for the Asian market. Despite the bearishness in Asia, the front-month CIF NWE naphtha crack swap has not fallen significantly, assessed at a six month high August 14 when is was at minus US$6.12/barrel, and heard trading at minus $6.80/b Tuesday.