Asian propylene-naphtha spread crunches to 4-month low on naphtha upswing

Singapore — Asian naphtha prices strengthening to an almost 12-month high as propylene prices weaken has narrowed the propylene-naphtha spread to a four-month low, S&P Global Platts data showed Jan. 13.

The spread between FOB Korea propylene and naphtha C+F Japan cargo assessments narrowed $7.75/mt day on day to $424.25/mt at the Jan. 12 Asian close. The spread was lower on Sept. 4, 2020, at $420/mt, Platts data showed.

The typical breakeven level for propylene production is around $250/mt, and the Asian propylene-naphtha spread has remained above this level since Jan. 9, 2020, Platts data showed.

Feedstock naphtha, used by steam crackers to produce propylene has been on a crude-driven price uptrend, which pushed benchmark naphtha C+F Japan cargo up $7.75/mt day on day to $525.75/mt at the Asian close Jan. 12, a level last higher on Jan. 24, 2020, at $531.75/mt, Platts data showed.

Crude prices have firmed in response to the recent production cut by Saudi Arabia, vaccine rollouts and stimulus hopes.

Front month March Brent crude futures were assessed at $55.98/b at the Asian close Jan. 12, up $2.05/b week on week, Platts data showed. Front month Brent crude at the Asian close had averaged $50.11/b in December and $43.62/b in November, Platts data showed.

In addition, naphtha demand is robust as petrochemical makers are keen to run their naphtha-fed steam crackers at full or close to full capacity on positive olefin margins. Moreover, winter demand has boosted LPG to a premium to naphtha, making it uneconomical as an alternative cracker feedstock, sources said.

PROPYLENE UNDER PRESSURE

Propylene prices have been weighed down by thin trading activity, the availability of cheaper domestic cargoes in China, and weakness in polypropylene, sources said.

The CFR China propylene price was assessed steady day on day at $975/mt Jan. 12 and down $40/mt month on month, while the FOB Korea marker was unchanged day on day at $950/mt and down $20/mt month on month, Platts data showed.

Chinese buyers were putting import spot purchases on hold as they were expecting prices to soften when South Korean majors YNCC and LG Chemical restart cracker operations later this week. Weaker downstream polypropylene futures were also impacting their buying interest.

The planned restarts of naphtha-fed steam crackers in January and February are slated to increase propylene supply, sources said.

China's Fujian Meide is also expected to produce on-spec propylene from its new PDH plant in Fujian province this month, and this is expected to add further pressure on import prices, sources said.