Naphtha crack in Asia vs front-month Brent crude oil futures weakened to its lowest in nearly 16 months on Thursday of the previous week, amid weak demand for naphtha, as per Platts. The crack between front-month ICE July Brent crude and CFR Japan naphtha cargo assessment weakened US$7.625/mt day on day to be valued at US$49.625/mt Thursday, its lowest since US$45.45/mt on January 12, 2015, Platts data showed. Traders attributed the weakness in the Asian naphtha market to poor demand for gasoline blending, and ready availability of cheaper LPG as a cracking feedstock for ethylene.
"There is a significant amount of [finished] gasoline floating around the region, hence weakening demand for naphtha [as a gasoline blendstock]," a regional trader said Friday. Traditionally, Asia's demand for naphtha peaks during Q2, as regional blenders purchase blendstocks for gasoline blending to meet seasonally higher gasoline demand. But this year, demand is much weaker than expected. "Gasoline coverage [has] manifested in a very different way. Instead of blenders blending [low octane gasoline] for Indonesia, refiners max out their gasoline yield and directly supply finished grades into the market," another Asian naphtha trader said.
Adding to the demand woes was ample availability of cheap LPG in the region, allowing petrochemical end-users to substitute naphtha in the cracking pool. End-users typically switch to using LPG as a cheaper alternative to naphtha for cracking purposes when LPG is about 90% the price of naphtha, or when it is $50/mt less than naphtha.
With the spread at a huge discount, petrochemical plants in Taiwan and South Korea with steam crackers capable of using more LPG were encouraged to increase LPG utilization at their plants to about 10% in May. They are now looking to increase the LPG utilization to about 15% in June, if LPG prices are persistently cheaper.
09-May-16 
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