LPG remains an unfeasible alternative feedstock option at North Asia's steam crackers

25-Feb-16

LPG prices are steadily declining, However, Northeast Asia's petrochemical producers are not considering the use of propane and butane as an alternative feedstock to naphtha at their steam crackers, even though LPG prices are steadily approaching the threshold for the switch, as per trade sources in Platts. On Tuesday, the spread between front-line March Argus Far East Index propane and Platts CFR Japan naphtha swaps was at minus US$20.50/mt, which puts propane at 94% of naphtha's value. End-users typically switch to using LPG when LPG prices fall to about 90% of naphtha values, or about US$50/mt below naphtha. But with outright CFR Japan naphtha having now plunged to the $300s/mt following the steep fall in crude oil prices over the last 20 months, traders said end-users would make the switch only when LPG prices are about US$40/mt cheaper than naphtha prices, or around 86% of naphtha's value. As of now, Northeast Asian petrochemical producers are seen seeking just spot naphtha for second-half March and H1 April delivery and that demand has been robust, thanks to strong petrochemical cracking margins which help keep steam cracker run rates at relatively high levels. South Korea's YNCC for one, has bought three 25,000 mt cargoes of open specification naphtha with a minimum paraffin content of 70% for H1 April delivery into Yeosu, at parity to Mean of Platts Japan naphtha assessments on a CFR basis, pricing 30 days prior to delivery. This was higher from the company's last purchase of two cargoes for H2 March delivery at a discount of US$5/mt to MOPJ naphtha assessments, CFR, pricing 30 days prior to delivery. YNCC is one of Northeast Asia's major spot naphtha buyers.