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Asia naphtha prices seen firm as Nov demand surge beats jump in Western supplies

Asia’s seemingly unquenchable thirst for naphtha is set to keep prices firm through the end of this year, even as supplies from Western sources, including Europe and the Mediterranean basin, rise to a four-month high in November, industry sources said.

Some 1.3 million tonnes of Western naphtha could land in Asia in November, three traders who monitor east-bound trades said. The November inflows would be the highest for Asia since July, but would still be outstripped by demand seen at 1.5 million tonnes, they said.

“Supplies are higher (but) end-users’ stocks are depleting. The market will stay firm,” said one of the traders.

Buyers were paying more for cargoes, according to the traders, who declined to be identified because they weren’t authorised to discuss the matter publicly. Crack – the premiums/losses incurred in refining a barrel of Brent crude into the light fuel – hit an eight-month high of $104.28 a tonne on Oct. 12 before easing to almost $101 a tonne on Oct. 16.

In one example, Asia’s top importer, Formosa Petrochemical Corp, paid higher premiums last week for cargoes scheduled for second-half November delivery to Mailiao, Taiwan, where it operates three crackers.

Suppliers have built up their edge over buyers as demand has grown amid stock depletion. Recently Kuwait Petroleum Corp commanded a term premium that was more than double its previous price for a 12-month contract starting December.

“Naphtha should be able to roughly hold onto its recent levels. We see seasonal demand increases and higher supplies cancelling each other out,” said JBC analyst Michael Dei-Michei when asked for his views on naphtha’s current strength.

The prevailing mood provides a contrast with the tone of the market in end-June to early August, when spot cargoes were released at discount levels because of a glut.

Since then, outages in Shell’s Pernis refinery in the Netherlands, the hurricane season in the United States and a lack of cheap alternative liquefied petroleum gas (LPG) feedstock have combined to hasten the recovery of naphtha prices.

Adding to this, the largest of Formosa’s crackers resumed operations late last month following scheduled maintenance which started in August. Post-maintenance, its use of LPG will likely be lower than before.

“LPG feedstock substitution in crackers is unlikely to turn attractive in the fourth quarter as winter demand will keep (LPG) prices supported,” said consulting firm FGE in a note.

“Strong naphtha demand in Asia, coupled with lower inflows from the Middle East and Europe should hence support naphtha cracks in the $1-2 barrel range over the next six months,” it added.
Source: Reuters (Reporting by Seng Li Peng; Editing by Kenneth Maxwell)

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