Naphtha spreads in Asia to weaken on softer petrochemical demand

Asia’s naphtha intermonth spreads are expected to weaken amid renewed concerns over weaker petrochemical demand and ample cargo availabilities, as per ICIS. Market sentiment may turn bearish in spite of firm gasoline blending demand, after key spot buyer Formosa Petrochemical Corp (FPCC) reduced the run rates at its three naphtha crackers in Mailiao, Taiwan, to around 85% of capacity last week because of a prolonged shutdown at a derivative line, they said. On 3 June, open-spec naphtha prices for H2-July contract fell by US$17-18/ton (€13-14/ton) from 31 May to US$843.50-846.50/ton CFR Japan, the weakest since 3 May 2013, because of losses in global crude futures, according to ICIS. At 9:58 Singapore time (02:58 GMT), July Brent crude futures traded 52 cents lower at US$99.87/bbl. In the week ended 31 May, open-spec naphtha prices rose marginally by US$3.50/ton to US$861.50-863.50/ton CFR (cost & freight) Japan, ICIS data showed. Weakening petrochemical demand tempered price gains derived from increased naphtha demand as a component in the gasoline blending pool during the peak driving season in the US, traders said. The intermonth spread between the naphtha contracts for H1-July and H1-August weakened to a backwardation of US$9.50/ton in the week ended 31 May, from a backwardation of US$12.50/ton in the previous week. The backwardation between the naphtha contracts for H2-July and H2-August was assessed at US$9.50/ton in the week ended 31 May, compared with a backwardation of US$10/ton in the previous week. “Considering the bad petrochemical market, it is very difficult to see increase in demand. We [also] have ample supply,” said one trader. FPCC reduced its cracker run rates from 90% because of the prolonged shutdown at its derivative monoethylene glycol (MEG) line at the same site. The company’s three crackers have a combined nameplate ethylene capacity of 2.93m tpa. Nan Ya Plastics – part of the Formosa group – had delayed the restart of its 720,000 tpaNo 4 MEG line to end-June because of reactor issues. The line was shut for scheduled maintenance in early April and was initially scheduled to resume operations by mid-May. Meanwhile, the International Monetary Fund (IMF) has cut its forecast GDP growth for China this year to “around 7.75%” from 8%, expecting the world’s second biggest economy to show a moderate improvement in activities in the second half of 2013. The projection represents no major improvement on the 7.8% expansion recorded last year, but is slightly higher than China’s official target of 7.5%. In Japan, production of chemicals excluding pharmaceuticals in April decreased by 0.9% year on year, with plastics and synthetic rubber production down by 1.9% and 5.1%, respectively. The country’s overall industrial production in April was down by 2.3% year on year, according to official data. Northeast Asian ethylene margins based on naphtha feed fell by US$17/ton in the week ended 31 May to US$162/ton, while ethylene prices in northeast (NE) Asia traded in a tighter range last week, with spot prices falling by US$10/ton at the upper end of the range to US$1195-1220/ton CFR NE Asia, according to ICIS. Spot ethylene prices rose by US$5/ton at the lower end, the data showed.