Petrochem makers in Asia switch to cheaper LPG as an alternative feedstock to naphtha

11-Apr-17

Petrochemical makers in Asia are ramping up purchases of liquefied petroleum gas (LPG) to use as an alternative feedstock to naphtha. As winter and heating demand fades, and LPG gets cheaper, it becomes a cheaper feedstock option for the petrochemical industry, as per Reuters. Faltering demand for naphtha could drag on prices that have been in premiums to benchmark Japanese quotes for most of the year compared to discounts in the same period in 2016, while offering support to LPG markets. Petrochemical companies in Asia are typically set up to shift around 5-15% of their feedstock to LPG when prices drop below 93% the cost of naphtha.

"LPG prices will likely be weak relative to naphtha in the coming months, incentivizing petrochemical demand," said He Yanyu who leads Asia natural gas liquids market research at IHS Markit. However, increased LPG purchases would likely mitigate the impact on naphtha markets from possible naphtha shipment delays from Qatar following a splitter outage. And Asia is structurally short of naphtha, with a supply deficit averaging 4 mln tons a month in 2016, data from IHS consulting firm showed.