Spot premiums on naphtha expected to spike

Asian market sentiments have firmed on robust demand while spot cargoes have thinned on an ongoing absence of European arbitrage cargoes. The last naphtha that Asia received from the West was round 500,000 tons in August. The start-up of Kuwait Aromatics plant early this month could also lead to less spot volumes from Kuwait Petroleum Corp (KPC). In fact, robust buying interest has propelled naphtha cracks to a near two-month high of US$109/ton premium. December naphtha exports from India are expected to be steady at levels of 750,000 tons and will not contribute majorly to ease markets. In a trend that has taken the market by surprise, demand has picked up in Asia, particularly from China. A weak markets vs the last month was anticipated in line with H1-October week demand from China. Buyers showed interest in spot cargoes while few petrochemical producers had low levels of naphtha inventories as they were planning a reduction in crackers run rate. But healthier-than-expected demand from China has reversed the situation. Run rates at cracking units in Asia are high, prompting South Korea, Taiwan and Japan to buy at least 470,000 tons of naphtha for H2-December arrival over the last three days. Increase in China’s petrochem demand will lead to increased imports, and the regions demand for naphtha will not be matched by higher Indian exports. Hence spot premiums are expected to spike. Anticipation of easing of the tight supply with the influx of imports from the West did not occur after a couple of vessels put on provisional bookings for November lifting from Europe did not turn into actual fixtures.
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