Naphtha prices in Asia tumble as global crude oil futures dip amid downbeat demand

09-Aug-19

Asia naphtha prices spiralled lower in response to steep losses in global crude oil futures, while downbeat demand weighed on the market, as per ICIS. Prices are down by a hefty 12% from month-earlier levels, according to ICIS data. Open-specification naphtha prices for H2-September delivery stood at US$454.50/ton CFR (cost and freight) Japan at early hours session on Thursday, tumbling by US$8.50/ton from the previous day’s Asia close.

Spot CFR Japan naphtha prices have been on downward trend since the start of the week, tracking weakness in global crude futures, which the petrochemical feedstock is closely-related to. ICE Brent crude oil futures for October had settled lower at US$56.23/bbl as of 7 August, following a surprise build-up in US crude oil inventories compounded by fears of slowing demand. Naphtha’s crack spread, a measure of naphtha refining margins, stood at US$21.70/ton on 7 August, the lowest since 28 June when the spread stood at below US$20/ton, ICIS data showed.

Amid a dearth of physical spot buying in northeast Asia for H2-September delivery supplies generated downward pressure on sentiment. Taiwan’s Formosa Petrochemical (FPCC) skipped its H1-September spot naphtha requirements owing to maintenance at its cracker in Mailiao next month. FPCC will shut its No. 2 downstream 1.035 mln tpa ethylene cracker in mid-August to end-September. In South Korea, LG Chem is expected to keep run rates at its cracker with an ethylene capacity of 1.27 mln tpa at reduced output, which might curtail its demand for the petrochemical feedstock.
Reinforcing the weakened market, naphtha’s forward intermonth backwardation between the H2-September and H2-October shrank to US$2.25/ton on 8 August, a two-week low.