Asia naphtha prices edge up with crude oil; market sentiment choppy
Asia naphtha markets are buoyed by firmer global crude oil futures and pockets of demand, even as market sentiment leans towards a fragile undertone, with expectations of near-term demand stable at best.
At early hours session on Wednesday, open-specification naphtha prices averaged at around $404.00/tonne CFR (cost and freight) Japan basis for first-half September delivery, rising by a modest $4.50/tonne from the previous session’s close on 21 July.
Spot naphtha prices recovered to the $400/tonne CFR Japan level in response to gains in crude oil markets, fuelled by hopes of coronavirus vaccine trials.
ICE Brent September crude oil futures were at $44.01/bbl at noon session in Asia after settling at above $44/bbl.
End-user naphtha demand in parts of northeast Asia was characterised stable, if not fragile, amid a lack of market factors significantly driving sentiment.
Cracker maintenance in the region may well curb demand for the petrochemical feedstock.
Key importer Taiwan’s Formosa Petrochemical (FPCC) skipped its spot tender to purchase second-half August delivery open-specification naphtha, ahead of scheduled maintenance at its No 3 cracker from mid-August.
FPCC is, however, likely to step into the spot market with first-half September supplies, coinciding with improved downstream margins.
Asia naphtha’s crack spread, its refining margin, recovered to $70.85/tonne on 21 July after falling to $65.98/tonne on 16 July.
South Korean end-users are understood as soon to emerge with first-half September spot requirements.
“There is [naphtha] demand in September … it is not demand but a supply issue,” said a northeast Asia-based market source.
Cheaper liquefied petroleum gas (LPG) amid a negative spread against Asia naphtha offered economic incentive for downstream producers as an alternative feedstock, although the spread has since narrowed.
In Japan, imports of naphtha stood at 1.28m tonnes in May, up slightly 1.25m tonnes in April.
However, volumes are lower than January’s 1.62m tonnes with the coronavirus spread globally thereafter, ICIS Supply and Demand data shows.
On transatlantic flows, naphtha exports from the US to Asia saw an increase of 173% from January-May 2020 compared with the same period in 2019 as the coronavirus pandemic resulted in a shift in surplus supply to Asia.
Still, the market is drawing comfort from expectations of supply to remain rather snug amid reduced refinery runs, as well as an anticipated contraction in Asia-bound arbitrage supplies from Europe this month and in August.