Naphtha in Asia crosses US$500/ton threshold amid rising crude, tighter supply

Open-spec naphtha prices in Asia surged above US$500/ton amid strong overnight gains in crude futures, on prospects of tightening deep-sea supply and firm regional demand, as per traders in ICIS. H2-March naphtha contract rose by US$32-33/ton from the close of trade on 2 February to US$511.50-514.50/ton CFR (cost and freight) Japan. Prices are being buoyed by prospects of lower deep-sea naphtha inflows from the US, where refinery strikes are ongoing. The strike, which affected nine US refineries and petrochemical plants, started on 1 February. Refineries affected include the LyondellBasell refinery in Houston; Marathon Galveston Bay refinery in Texas City, Texas; Marathon Houston Green Cogeneration facility in Texas City, Texas; the Marathon refinery in Catlettsburg, Kentucky; the Shell Deer Park refinery in Deer Park, Texas; the Shell Deer Park chemical plant in Deer Park, Texas; and Tesoro refineries in Anacortes, Washington; Martinez, California; and Carson, California. Crude futures were extending their gains on Tuesday, with Brent crude for March delivery trading above US$55/bbl and US crude quotes at close to US$50/bbl at midday. Prices were being supported by a weaker US dollar and expectations that the decline in drilling activity because of the strike will slow supply growth. In Asia’s naphtha market, meanwhile, inflows of arbitrage cargoes from Europe and Russia are expected to decline amid a narrower east-west price spread. The March east-west spread narrowed further to US$22.50/ton from US$25.50/ton two weeks ago, while the April east-west spread is now pegged at US$22.75/ton, traders said. Asia is expected to receive around 800,000 tons of deep-sea naphtha in the first half of March. The total arbitrage volume for the whole of March, however, is expected to be lower than February's 1.9 mln tons, owing to a greater use of naphtha as cracking feedstock in Europe given its price advantage over propane. Demand, on the other hand, is expected to firm in Asia, prompting higher price differentials in recent transactions. China has been actively buying naphtha given a heavy refinery turnaround schedule in the second and third quarter, and also to meet growing demand from downstream paraxylene (PX) segment, traders said. Zhongjin Petrochemical is expected to start up its new 1.5 mln tpa PX unit located at Ningbo, China, by the end of the first quarter.Taiwan’s Formosa Petrochemical Corp (FPCC) has increased the run rates at its three Mailiao crackers to around 95% on 1 February as planned, from 90% previously amid improvement in the olefins export market. The company’s three crackers have a combined ethylene capacity of 2.93m tonnes/year.