Japan’s naphtha demand to decline 3.25% by 2025-26: METI
Japan’s naphtha demand is expected to fall in the next five years to fiscal year 2025-2026 (April-March), and remain below prepandemic levels, according to a petroleum demand outlook approved April 6 by the Ministry of Economy, Trade and Industry, or METI.
Less demand for downstream exports of ethylene and benzene, toluene and xylene were expected, which would cause a decrease in overall naphtha demand in Japan, METI said.
Domestic demand of ethylene was expected to increase along with the economic growth. However, exports could fall due to new plants in China and an influx of US products into the Asian market.
For BTX, while overseas demand remains strong, production is expected to decline slightly as the growth in Japanese exports would be restrained by the construction of large plants in China, according to METI.
Market participants also said the decrease in naphtha demand could be led by an overall decline in gasoline.
“Japanese crackers have no plans for expansion or closure, and are all trying to run at 100% due to sustained petrochemical demand, so this decrease is likely coming from the gasoline side, as the government is aiming to decrease use of hydrocarbon fuel,” said a naphtha trader.
“Economically it is difficult for Japanese crackers to compete with Chinese and Korean crackers – they just intend to cover domestic market – they would rather do a joint venture to build a PDH plant or cracker in China rather than export,” the source added.
Japan’s naphtha demand is forecast at 39.231 million kiloliter, or 676,041 b/d, in fiscal 2025-2026, a decrease of 7.8% from fiscal 2019-2020 and a 3.25% fall compared with the fiscal 2021-2022 outlook.
The 2025-26 naphtha demand outlook is below the prepandemic level of 42.55 million kiloliter in fiscal 2019-2020.
This was in line with the decline in Japan’s total oil products demand due to the country’s ongoing structural declines in domestic oil demand, showed METI’s outlook.
Naphtha demand is forecast to rise 0.97% year on year at 40.55 million kiloliter in fiscal 2021-2022, in line with an overall economic recovery following COVID-19 vaccine rollouts globally. Additionally, there is a lighter steam cracker-turnaround season in 2021, with only Idemitsu Chiba, Mitsubishi Chem Mizushima and Mitsui Chem Chiba having scheduled maintenance works.
Japan lifted its state of emergency measures in a bid to curb the pandemic on March 21 but on April 5 introduced priority measures in Osaka, Hyogo and Miyagi prefectures until May 5 following a rise in new infections.
An eventual rebound in gasoline demand is expected when coronavirus-related movement restrictions ease, which would also boost demand for naphtha as a gasoline blendstock.
Japanese end-users have currently began buying open-specification naphtha with minimum 65% paraffin content on the spot market due to improved aromatics margins — something not seen since at least the second half of 2020 due to positive olefins margins. The positive margins led naphtha-fed steam crackers to utilize higher paraffin content naphtha feedstock, with many end-users buying open-spec naphtha with minimum 70% paraffin or higher.
The five-year outlook was presented April 6 at the petroleum market trends working group under METI’s petroleum and natural gas subcommittee for approval. It uses outlooks including the Jan. 18 government economic outlook for Japan’s economy to recover to the pre-pandemic level during fiscal 2021-2022.
The approved petroleum outlook for fiscal 2021-2022 to fiscal 2025-2026 will be used as the basis for Japan’s petroleum reserves at the ministry’s natural resources and fuel committee.