Formosa resumes buying: naphtha prices in Asia likely to see an uptrend

19-Dec-11

Formosa has resumed naphtha buying- FPCC ceased spot naphtha imports from August to mid-December because of cracker shutdown issues. As a result, naphtha prices in Asia are likely to see an uptrend until late January, supported by strong spot buying from key Asian importer Taiwan as well as trading companies which helped to mop up large volumes of deep-sea inflows for January, as per ICIS. The naphtha inter-month spread widened by US$1/ton to US$7.50/ton in backwardation, while the prompt naphtha crack spread strengthened to near US$100/ton against Brent crude futures. The naphtha market seems to be heading for a hike likely to continue until the Lunar New Year on 23-24 January 2012. Large volumes of arbitrage- about half a mln tons, for January have already been absorbed into the market, reflecting strong regional demand. Mid week, Formosa Petrochemical Corporation (FPCC) bought 150,000 tons of spot naphtha for H2 January delivery, its first spot purchases since August and after lifting run rates at its three crackers to 85-86% from 80-85% previously. The cargoes were transacted at a premium of US$3-3.50/ton to Japan quotes CFR (cost and freight). Demand from FPCC is expected to remain strong in H1-2012, because the company has scheduled to shut its 700,000 tpa No 1 cracker at Mailiao for a 40-45 day turnaround in August 2012. The South Korean crackers paid higher naphtha premiums this week for spot transactions for second half of January delivery. South Korea’s Honam Petrochemical Corp bought 75,000 tons at a premium of US$6.00/ton to Japan quotes CFR, while Samsung Total bought 25,000 tons at a premium of US$6-6.50/ton and LG Chem purchased 25,000 tons at a premium of US$6.00/ton. Additionally, the outlook on China’s petrochemical demand seems positive despite a wobbly global economy. Chinese demand for petrochemicals is estimated at around 110 mln tons in 2011, expected to grow to around 160 mln tons by 2016, while domestic supply is expected to grow from about 70 mln tons in 2011 to around 110 mln tons in 2016, according to CMAI. Demand for petrochemicals will continue growing at a high rate through to 2015, but will grow at a slower rate than the levels seen in 2006-2010 as the economy cools.