Asia octane: Key market indicators Sep 6-10

Asian octane blendstocks are likely to be led by naphtha this week, with eyes on increased buying activity for the H2 October delivery cycle, while expectations of tightened supply from the US as a result of Hurricane Ida lift sentiment as well.

Meanwhile, other higher octane blendstocks such as MTBE, toluene and isomer-MX are set to remain in the doldrums, with the lack of import appetite from Southeast Asian blenders as well as poor a close arbitrage window limiting overall activity.

Naphtha

** Buying activity is slated to continue this week for the H2 October delivery cycle, although some concerns linger with end-users who were in no hurry to purchase for the current trading cycle since it began on Sept. 1.

** Still, overall sentiment has been firm, with refinery outages caused by Hurricane Ida expected to result in tighter supply from the US Gulf Coast, a source of arbitrage naphtha. Evidence of the support was demonstrated in the swaps backwardation structure, as front month October-November Mean of Platts Japan naphtha swap had climbed to $7/mt on Sept. 3, Platts data showed.

** That said, weak downstream demand has led to a crunch in aromatics margins which could have a bearish impact on the naphtha complex in the near term. The key PX CFR Taiwan/China marker and C+F Japan naphtha cargo was down to a 12-week low of $226.96/mt on Sept. 3, a level last lower on June 11, when it was $225.46/mt, Platts data showed. The decreased earnings may prompt splitters to lower run rates, thus lower demand of naphtha feedstock, sources said.

MTBE

** The Asian MTBE complex is expected to face continued headwinds this week, with outright prices pressured by a lower crude oil complex while fundamentals stay poor amid lingering weak demand from Southeast Asia.

** MTBE demand from Malaysia, in particular, is likely to stay in the doldrums in the near term, according to market sources, who note that despite some easing of lockdown restrictions, overall gasoline appetite remains poor.

** Exacerbating matters, the Singapore-to-China MTBE arbitrage window is expected to remain closed amid lackluster domestic demand in China.

Toluene

** A decline in Southeast Asian demand amid the lingering impact of COVID-19 is expected to remain a drag on the Asian toluene complex this week, with Vietnamese term buyers still holding off purchases for cargoes loading over October laycans.

** Upside in that regard remains limited, with toluene prices mostly tracing movements to crude and product prices, while steady demand from India helps to cap any sharp bearishness.

Isomer-MX

** Industry participants expect further downside from the Asian isomer-MX market, as news of major maintenances in October at end-users such as South Korea's Lotte Chemical and Taiwan's Formosa Chemical & Fiber Corp in the downstream paraxylene market keep buyers on the sidelines.

** In addition, lagging gasoline demand has also kept blenders away from using isomer-MX as a blendstock, with demand expected to trend even lower as the Northern Hemisphere approaches its winter months.

Ethanol

** The Asian ethanol complex is expected to be mired with poor demand, with market participants reporting a lack of buying interest and inquiries from the Philippines. "I think the situation will continue until Q4," said a source.

** Demonstrating the bearish headwinds on Asian ethanol, CIF Philippines Assessment values fell as the first half-monthly cycle rolled into inverse from H1 October to H2 October, with US ethanol delivered to the Philippines assessed at $638.33/cu m on Sept. 3 against $665/cu m on Aug. 27, Platts data showed.

** That said, however, supportive US data could cap further downside on Asian ethanol. US ethanol production fell to its lowest level since late February in the week ended Aug. 27, falling 28,000 b/d on the week to 905,000 b/d, US Energy Information Administration data showed.