Naphtha crack in Asia at widest in two months amid firm demand, tighter supply

01-Apr-16

Naphtha crack against ICE Brent crude oil was at its widest in Asia in two months, due to strong buying interest and shrinking supply, as per Platts. Reflecting a mixture of bullish factors in the naphtha market, the crack between front-month ICE Brent crude and CFR Japan naphtha cargo assessment widened US$5.925/mt day on day to US$97.525/mt Wednesday, the widest since January 21, when it was US$99.45/mt. Traders attributed the strength to the very profitable ethylene market in Asia. Market sources said tight ethylene supply during the cracker turnaround season has encouraged other steam crackers in the region to run close to maximum rates. The spread between CFR Northeast Asia ethylene and CFR Japan naphtha was at US$810.25/mt Wednesday. The spread soared to an 11-month high on March 16 at US$827.125/mt. It was last wider June 30 at US$842.50/mt. The naphtha supply situation has changed significantly from Q1 to Q2. In Q1, sentiments were dull as Asia was swamped with naphtha cargoes amid an open arbitrage. Traders estimated 1.8 -2 mln mt/month was arriving in Asia at the time. But traders expect Q2 arbitrage arrivals to shrink to 1.4 -1.5 mln mt/month due to strong European naphtha demand. "European producers are performing quite well as ethylene prices are good in Europe," a trader said. European producers were said to have adjusted steam cracker operations in favor of ethylene to maximize profits from high petrochemicals margins. Reflecting Europe's strong naphtha demand, the front-month Northwest Europe naphtha/Brent crack has steadily climbed to US$1.30/b Wednesday, from a low of minus US$2.67/b on March 8. Traders expect the Asian naphtha market to remain supported by strong demand and relatively tighter supply. They said arbitrage supply from the West of Suez will likely rise, but demand will remain balanced as some Asian steam crackers return from maintenance at the same time. Summer driving season is also expected to increase naphtha demand for gasoline blending. "Q2 is the start of summer -- gasoline demand should prop up blending demand for naphtha as well," a trader said.