Asia octane: Key market indicators Aug 10-13

Participants in the Asian octane market are expected to stay cautious in the week started Aug. 8, with sustained high outright prices leading to the formation of several bearish indicators.

Olefin margins have begun to narrow in the regional naphtha complex, sellers have emerged to cap gains on the MTBE front, and participants in the toluene and isomer-MX complex have opted to stay on the sidelines and await fresh directional cues.

Against this backdrop, new lockdown measures in China and the Philippines have also clouded the sentiment, with the near-term demand outlook for ethanol taking a pause following new restrictions imposed in the Greater Manila region Aug. 6.

Naphtha

** Participants in the Asian naphtha complex will likely stay cautious in the week, with high outright prices and narrowing olefin margins weighing on spot premiums for physical cargoes against a generally positive sentiment around naphtha fundamentals.

** The spread between CFR Northeast Asia ethylene and CFR Japan naphtha physical decreased $19/mt day on day to $295.50/mt at the Asian close Aug. 6, S&P Global Platts data showed. Although this was still above the typical breakeven spread of $250/mt for integrated producers, it was below the $300-$350/mt breakeven level for non-integrated producers.

** Cash differentials for spot paraffinic naphtha parcels also dropped to average $8.75/mt Aug. 2-6 against the benchmark Mean of Platts Japan naphtha physical, on a CFR Japan basis, Platts data showed, with narrowing downstream margins weighing on demand for the second-half September delivery cycle.

MTBE

** The Asian MTBE complex is expected to stay mixed in the week started Aug. 8, with steady selling interest capping any strength in outright prices that would have stemmed from rising gasoline and crude markets.

** In addition to the selling interest, fundamentals in the MTBE market will likely come under further pressure. India is expected to increase export volumes in line with the government's attempt to increase the availability of E10 fuel.

** MTBE supply from Taiwan is also expected to rise, with producers increasing their exports due to weak domestic gasoline blending demand. Domestic gasoline blending demand has continued to remain poor since late-July, with Taiwan still recovering from the impact of typhoon In-fa while maintaining a few pandemic-control measures.

Toluene

** Fundamentals on the Asian toluene front are expected to stay on the backfoot, with eyes focused on developments in China.

** A resurgence of coronavirus cases as well as virus-related restrictions in China have injected pressure on the high-octane blendstock, with spot trading interest muted while domestic supply increases, sources said.

** Moreover, with the volatility in crude oil prices also adding to the uncertainty in outright prices for toluene, participants were cautious while awaiting more certain trading cues.

Isomer-mx

** The Asian isomer-MX complex is expected to stay rangebound, with outright prices moving in tandem with volatile crude prices while MX similarly could remain driven by directional moves on the PX front.

** That said, production economics have improved for PX producers, which could in turn lead to increased production of PX and demand for MX moving forward, sources said.

Ethanol

** Headwinds are brewing in the Asian ethanol market, with demand for ethanol in the Philippines expected to decline following new lockdown measures being imposed in the Greater Manila region Aug. 6.

** Although demand had risen for fourth-quarter ethanol cargoes, purchases from domestic ethanol producers still took precedence over sourcing from imports, especially against a backdrop of uncertain demand, sources added.

** In addition to poor regional demand, factors outside Asia did little to help raise the sentiment. Data from the US Energy Information Administration showed that in the week ended July 30, ethanol production only dropped 1,000 b/d while stocks dropped a mere 84,000 b/d.