Tightening supply, rising demand from China ahead of Lunar New Year to bolster Asian naphtha

Asia’s intermonth naphtha spread is expected to firm on the back of tightening supply and rising Chinese demand for the petrochemical feedstock ahead of the Lunar New Year in February, as per ICIS. The bullish sentiment was fuelled by higher cracker operating rates in northeast Asia, sparking higher demand for naphtha. Expected refinery turnarounds in the Middle East in February will result in lower supplies to Asia. Naphtha crack spread against February Brent futures firmed to US$129.75/ton on 7 January from US$123.7/ton on 4 January. Open-spec H2-February contract rose by US$5.50-6.50/ton from 7 January to US$966-969/ton CFR (cost & freight) Japan on the morning of 8 January, amid firm fundamentals. Meanwhile, the ethylene margins (naphtha feed) in northeast Asia were at US$69/ton in the week ended 4 January, up by US$46/ton from the week ended 28 December, according to ICIS weekly margin report. Polyethylene (PE) import prices rose in China in the week ended 4 January. Low density polyethylene (LDPE) prices rose by US$10/ton at the high end of the range to US$1325-1400/ton CFR China and linear low density polyethylene (LLDPE) prices were up by US$15-40/ton at US$1400-1445/ton CFR China. There was firm buying interest for PE, because of concerns that plant shutdowns in the Middle East – both planned and unplanned – may tighten supply in Asia, market participants said. United Arab Emirates’ Borouge has shut its 540,000 tpa PE plant in Ruwais for scheduled maintenance. Saudi Arabia’s Petro Rabigh shut its 600,000 tpa LLDPE plant and 300,000 tpa high density polyethylene (HDPE) plant in Rabigh on 29 December after a power outage. The short-term market outlook is positive, as some PP importers in China and southeast Asia are expected to book cargoes for prompt arrival, before the key China market closes for the Lunar New Year holiday on 10-15 February. Taiwan’s Formosa Petrochemical Corp (FPCC) bought 100,000-150,000 tons of spot naphtha for delivery to Mailiao in H1-February, because of strong upstream demand. The deals for the cargoes were done at a premium of US$12-13/ton to Japan quotes CFR. FPCC raised the operating rates for its three naphtha crackers in Mailiao to 95% capacity in January - the 700,000 tpa No 1 cracker, a 1.03 mln tpa No 2 cracker and a 1.2 mln tpa No 3 cracker in Mailiao. All three plants were operating at 85% capacity in December 2012. South Korea’s Yeochun NCC (YNCC) increased the operating rates at its three naphtha crackers in Yeosu to 100% capacity in January from 90% in December, because of healthy demand from the local derivative PE sector. YNCC’s three crackers have a combined nameplate ethylene capacity of 1.9 mln tpa. South Korea's Samsung Total is operating its 1 mln tpa cracker in Daesan at 100% capacity in January, stable from December’s run rates. Premiums remained firm in response to tightening supply. India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) sold by tender a 35,000 ton naphtha cargo to Japan’s Mitsubishi Corp at a premium of around US$43/ton to Middle East quotes FOB (free on board).The cargo is scheduled for loading from the New Mangalore port on 8-10 February. Meanwhile, naphtha supply in Asia is tightening, because of lower deep-sea volumes from Europe, tighter flows from the Middle East and a reduction in Indian exports, traders said. India is expected to export 800,000 tons of naphtha in January, down by around 11% from the exports made in December, because of refinery maintenance. Indian refiners exported an estimated 900,000 tons of naphtha in December.