Asia naphtha slides on soft crude oil; spot demand returns

Asia naphtha markets slipped in tandem with easing crude oil futures, but a return of spot demand coupled with an anticipated fall in excess supply may well provide some needed support.

Open-specification naphtha prices on Tuesday morning stood at $517.00/tonne CFR (cost and freight) Japan, down by $4.50/tonne from the previous day’s Asia close.

Prices tracked overnight falls in global crude oil futures on concerns over demand as international trade disputes continued to weigh on the global economy.

Prompt-month September ICE Brent crude oil futures settled lower at $64.11/bbl on Monday.

But Asia’s naphtha market drew comfort from a return of spot demand, coinciding with restarts at South Korean downstream crackers.

South Korea’s Hanwha Total Petrochemical has purchased three 25,000-tonne shipments of heavy full-range naphtha, for delivery to Daesan, at a high single-digit premium to spot CFR Japan quotes.

Its cracker operations have resumed in the second-half of June following an extended maintenance.

The spread between naphtha and ethylene has narrowed over the past month to below downstream producers’ desired levels, while spot buying activity could cushion sentiment.

South Korea’s Yeochun NCC (YNCC) has also bought three parcels of around 25,000 tonnes each at below parity to spot CFR Japan quotes.

Previously, the firm bought a similar volume, for second-half July delivery to Yeosu, at a discount of around $5.75/tonne to spot CFR Japan quotes.

YNCC completed scheduled maintenance at its No 1 cracker in late June.

Moreover, expectations of a less bloated supply scenario with lesser surplus arbitrage flows to Asia could provide some reprieve in lifting market sentiment.

The summer season in the West could potentially limit flows from northeast Europe. Naphtha can also be used as a blending component for gasoline.

Just around 1.2m tonnes of western arbitrage cargoes are estimated for the month of June, down from May’s estimated volumes near 1.5m tonnes.

Naphtha is mainly used as a petrochemical feedstock for producing downstream olefins and aromatics.