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Asia naphtha spreads to weaken on softer petrochemical demand

SINGAPORE (ICIS)–Asia’s naphtha intermonth spreads are expected to weaken amid renewed concerns over weaker petrochemical demand and ample cargo availabilities, traders said on Monday.

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 second-half July contract fell by $17-18/tonne (€13-14/tonne) from 31 May to $843.50-846.50/tonne 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 $99.87/bbl.

In the week ended 31 May, open-spec naphtha prices rose marginally by $3.50/tonne to $861.50-863.50/tonne 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 first-half July and first-half August weakened to a backwardation of $9.50/tonne in the week ended 31 May, from a backwardation of $12.50/tonne in the previous week.

The backwardation between the naphtha contracts for second-half July and second-half August was assessed at $9.50/tonne in the week ended 31 May, compared with a backwardation of $10.00/tonne 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 tonnes/year.

Nan Ya Plastics – part of the Formosa group – had delayed the restart of its 720,000 tonne/year No 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 $17/tonne in the week ended 31 May to $162/tonne, while ethylene prices in northeast (NE) Asia traded in a tighter range last week, with spot prices falling by $10/tonne at the upper end of the range to $1,195-1,220/tonne CFR NE Asia, according to ICIS. Spot ethylene prices rose by $5/tonne at the lower end, the data showed.

Asia’s spot MEG prices fell to a 10-month low as traders cut offers to offload stocks amid worries that China will take concrete measures to tame speculation in the market in June and July. MEG cargoes were sold at $950-965/tonne CFR CMP (China Main Port) on 31 May, down by $30-32/tonne from a week ago, according to ICIS.

In the meantime, supply of naphtha is easily available – both arbitrage material as well as from key regional exporter India. The deep-sea naphtha volumes from northwest Europe, the Mediterranean, Russia and the US were estimated to be 1.1m-1.15m tonnes, for arrival in June, and India is estimated to be exporting 750,000 tonnes of naphtha in the same month, market participants said.

($1 = €0.77)

Source: icis.com

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