Taiwan's Formosa switch from LPG to naphtha as steam cracker feedstock after November

Taiwan's Formosa Petrochemical Corp. is expected to continue using LPG as alternative feedstock at its steam crackers until after November when it will switch to fully using naphtha, an industry source said to Platts. The plan comes as prices of propane and butane in Asia had been on steady uptrend since hitting a more than six-month low on October 2, while naphtha has been on a decline since mid-October on concerns over abundant supplies coming in from Europe. Formosa had used up to 20% of LPG, in a combination of propane and butane, as an alternative feedstock to naphtha for its three steam crackers since May when LPG prices were at deep discounts to naphtha. The company will still have cheap LPG for cracking and that Formosa still has stocks of LPG bought in the past months when the price was low. The source discounted the possibility of Formosa reselling any of its cheaper stockpiles to the market to take advantage of current higher prices. Formosa's No. 2 naphtha-fed steam cracker at Mailiao, has capacity to produce 1.03 mln tpa of ethylene, 515,000 tpa of propylene and 162,000 tpa of butadiene, is scheduled to return from a 45-day turnaround at the end of this month. Formosa's No. 3 steam cracker -- its largest at Mailiao -- can produce 1.2 million tpa of ethylene, 600,000 tpa of propylene and 176,000 tpa of butadiene, while the No. 1 unit can make 700,000 tpa of ethylene, 350,000 tpa of propylene and 109,000 tpa of butadiene. Many North Asian petrochemical companies had begun switching to LPG as an alternative feedstock around end-February to early-March this year, when the Argus Far East Index propane swap slid into a discount as deep as US$108.50/mt versus Mean of Platts Japan naphtha swaps assessment, on February 21. The spread between butane and naphtha was at minus US$111.50/mt during the same period. But the spread between LPG and naphtha had been narrowing over the past month from minus US$85/mt for propane and minus US$70/mt for butane on September 19, to plus US$11.50/mt for propane and plus US$41.50/mt for butane on Thursday, Platts data showed. Traders said as winter approaches, expectations of ample propane supplies from the US to Asia had not been fully realized as volumes were diverted to Europe. Even though Middle Eastern producers Saudi Arabia and Qatar have partly filled the supply gap, supplies were said to be limited by cuts in term volumes from Abu Dhabi National Oil Co. and loading delays in Kuwait. Traders said there was also talk of an outage at a gas separation plant in Saudi Arabia, which limited loadings, though this could not be immediately confirmed. In contrast, naphtha's previous bullish sentiment has turned bearish as 800,000-900,000 mt of Western arbitrage volumes are expected to arrive in Asia in the first half of December alone, compared with initial projections of 600,000 mt for arrival over the whole of December.