Naphtha crack in Asia spikes over 10% to its highest in five weeks

22-Mar-16

Naphtha crack for front-month H1-May in Asia jumped 10.2% at the start of the week to its highest in five weeks at US$72.25/ton, boosted by demand and reduced incoming western cargoes seen for next month's arrival, as per Reuters. South Korea's LG Chem was seeking naphtha for H1-May delivery, coming shortly after YNCC, Hanwha Total and Malaysia-based Titan having locked a total of at least 100,000 tons last week for H1-May delivery. The details of LG Chem's deal were not immediately clear but traders expect any deal done price to be at a discount of about US$4 to Japan quotes on a cost-and-freight (C&F) basis. This was higher than the discount of US$7-8 LG Chem had paid on March 10 for up to 100,000 tons bought for second-half April delivery. China National Offshore Oil Corporation (CNOOC) was looking to buy naphtha for April and May delivery previously but the results were not known. "But if naphtha prices were to go up further, liquefied petroleum gas (LPG) will be more viable as a feedstock. The LPG factor could cap naphtha gains," said a trader. LPG can be used to replace 5 to 15% of naphtha in Asia's crackers provided it is at least US$50 cheaper than the latter. At the moment, LPG prices are below naphtha by not more than US$40, preventing some Asian buyers from doing the switch. But some buyers were convinced that as summer approaches, prices of LPG, used for also for heating, would ease. India's Essar Oil has sold a naphtha cargo late last week for April 12-16 loading from Vadinar to a European trader at a premium of about US$8/ton to Middle East quotes on a free-on-board (FOB) basis. This was US$1 higher than a previous cargo sold for early March loading to Petro-Diamond, as per Reuters.