Naphtha Margin Plunges In Asia-Sellers Hurt By Oversupply, Slowing Gasoline Demand

Naphtha margin plunges in Asia-sellers hurt by oversupply, slowing gasoline demand

08-Jun-16

A persistent supply glut and weak demand from gasoline producers have reduced naphtha margins in Asia by almost two-thirds this year - to around US$50/ton from January highs of almost US$150/ton, as per Reuters. Additionally, analysts opine that faltering appetite from China continues to keep the outlook dim for the next few months. Naphtha demand from China seems set to slow down from very high levels, with just over 20 independent refiners in the country switching from naphtha after receiving licences to import crude to make gasoline. Premasish Das, director for Asia and Middle East downstream oil markets at IHS estimates that Chinese imports averaged around 130,000 to 135,000 bpd (around 450,000 tons a month) in 2016 vs 950,000 in December 2015. He added that Asia's average net monthly naphtha imports, which were up 11.5% at 5.8 mln tons in 2015 from 2014, were likely to drop to 5.5 mln tons this year. Import volumes will also be dented by tapering demand from Japan, Asia's No.2 fuel consumer. Its monthly totals averaged 1.16 mln tons from January to April, down 13.4% from the same period last year, as the country adjusts to a declining population and a push towards more fuel-efficient vehicles.

The Middle East and India supply 4 mln tons/month of naphtha to Asia, with the rest coming from the West (Europe, the Mediterranean, United States). An average of 1.62 mln tons per month were sent by these countries to Asia in the first five months of 2016. But with at least 300,000 tons of liquefied petroleum gas (LPG) expected to replace naphtha in the crackers in June and July respectively, Asia needs no more than 1 to 1.1 mln tons of Western cargoes a month, said a Singapore-based naphtha trader. Traders hope markets will improve towards year-end, with petrochemical makers likely to use less LPG as prices become more expensive due to winter-heating demand for that fuel. Cuts in refinery runs could also lift markets later this year- around Q3.