Naphtha market in Asia firms on steady petrochemical demand, tight supply

Steady north Asian petrochemical demand and tighter supplies have seen the Asian naphtha market firming in recent days, with traders opining that the upward trajectory will likely continue, underpinned by the pull for cargoes, as per Platts. The market hit multi-month highs this week. At the Asian close Friday, the backwardation structure for the prompt CFR Japan physical spread hit US$11.25/mt, the highest since US$14.25/mt on March 28, 2013. Meanwhile, the CFR Japan H1-July physical naphtha crack spread against July ICE Brent futures fell US$2.60/mt to US$148.28/mt. Traders said spot premiums concluded in naphtha tenders -- both for FOB loading and CFR delivery -- have firmed on the back of busy spot market activity, with participants engaged in a mix of private negotiations and open tenders since mid-week. "The rally is due to a combination of factors such as minimum volume nominations [for H2-May delivery period], less arbitrage volumes for June-arrival into Asia, lower exports from India and unexpected buying from [Taiwan's] Formosa," a trader said. The Taiwanese petrochemical company surprised market participants this week with a second buy tender in as many weeks, which traders said was a rare move for the region's largest spot buyer. Formosa went on to make a spot purchase of around 150,000 mt of open spec naphtha with a minimum paraffin content of 70% for delivery over June 8-22 into Mailiao, traders said. Seller details could not be confirmed. Formosa had bought 150,000-200,000 mt of open spec naphtha with a minimum paraffin content of 70% a week ago, bringing the end-user's purchased volumes for June to around 300,000-350,000 mt. In its previous tender, it paid a premium of around $15/mt to MOPJ naphtha assessments, CFR Mailiao. Its recent spot premiums were in line with the market, traders said, with South Korean end-users this week having paid a premium of around $19-20/mt to MOPJ naphtha assessments, CFR, for first half of June delivery cargoes. CFR North Asian premiums were last seen higher around 13 months ago, with South Korean end-users forking out premiums of $20-21/mt in early April 2013. Meanwhile in India, firm demand in the naphtha market has also helped shore up spot FOB cargo differentials. Spot sale premiums from state-owned Indian refiner Mangalore Refinery and Petrochemicals Ltd. have hit a more than 13-month high, with the refiner selling a 50,000 mt cargo of naphtha to Marubeni at the Mean of Platts Arab Gulf naphtha assessments plus $44-45/mt, FOB New Mangalore. The cargo is to load over June 20-22.The refiner last sold a spot cargo at a higher premium on March 26, 2013 -- 35,000 mt of naphtha for loading May 10-12, 2013, also to Marubeni, at a premium of $47.50-48/mt to MOPAG naphtha assessments, FOB New Mangalore. Market participants said this week that leaner western arbitrage volumes and below average export volumes of naphtha from India amid refinery turnarounds was also contributing to the firmer sentiment. "For June arrival, there is about 1-1.1 million mt of arbitrage," a trader said. That compared with an estimated 1.3-1.4 million mt of western arbitrage product the Asian region will receive over May. In total, traders estimate June-arrival naphtha supplies -- from western arbitrage flows and FOB exports from India and the Middle East -- at 4.57 million mt. In contrast, May arrival supplies from the three regions were estimated at around 4.75 million mt. The situation has been further compounded by petrochemical end-users being unable to switch to using LPG as an alternative cracking feedstock, driving them to rely on naphtha as the feedstock of choice. Market participants said Indian refiners were already keeping a close eye on the Asian market, following MRPL's 13-month high spot sell premium. "I have not seen any extra supplies [from India] but I would not be surprised if they came out with additional volumes with premiums at current levels," a trader said. "I think they [Indian refiners] want to offer, but it depends on the market for gasoline and naphtha. So, [we will] have to wait and see."