Market and product

Asia’s naphtha spot premiums have plummeted on the back of ample supplies, with greater surplus arbitrage cargoes expected to land in the region next month.

Spot open-spec naphtha prices for first-half October delivery stood at $660.50/tonne on a CFR (cost and freight) basis at early hours session.

Prices were little changed from the previous close on 24 August, but have fallen by $19/tonne from the same period a month ago, according to ICIS data.

Expectations of increased deep-sea arbitrage arrivals of western origin dampened sentiment, adding to a market awash with supply.

Underscoring the bearish market undertone, naphtha’s forward market structure showed signs of faltering.

The inter-month spread between first-half October and the first-half of November delivery naphtha has narrowed to a small backwardation of $0.50/tonne from a $9.50/tonne backwardation a month earlier.

The same spread was at a wide $14/tonne backwardation at end-May, when market fundamentals were strong, ICIS data showed.

An estimated 1.5m-1.6m tonnes of arbitrage flows from Europe is expected to reach Asia in September, higher than average monthly volumes at around 1.2m-1.3m tonnes, according to traders.

“[There is] lot of prompt naphtha; big arbitrage and petrochemical turnarounds season in September-October,” a Singapore-based trading source said.

Fuelling the weakening market conditions, spot cargoes have yielded much lower premiums than previous transactions.

South Korea’s Hanwha Total Petrochemical recently paid a premium of $3.00/tonne to spot CFR Japan quotes for naphtha supplies, delivering to Daesan in the first-half of October.

The premium level was notably lower than premiums at slightly above $10/tonne to spot quotes the firm forked out for second-half September delivery cargoes.

Taiwan’s Formosa Petrochemical (FPCC) recently secured second-half September delivery naphtha at premium of around $1.50/tonne to its pricing formula.

In a similar vein, FPCC had earlier paid higher premiums at around $8.00/tonne to its pricing formula for first-half September supplies.

Naphtha demand typically peaks during the last quarter when raw material demand for petrochemical production rises during the festive season.

“Peak season starts after the [far east] turnarounds … so market may recover from end 2018,” a Singapore-based market source said.

- ICIS -