Asia's ethylene-naphtha spread doubles in two weeks to reach two-year high

Singapore — Tight ethylene supply and strong downstream markets have driven the key ethylene-naphtha spread to a two-year high, as ethylene prices also surge to two-year highs.

The spread between CFR Northeast Asia ethylene and CFR Japan naphtha physical was $589/mt at the March 4 Asian market close, up a sharp 113.89% in two weeks and a two-year high, S&P Global Platts data showed. The spread was last higher on March 4, 2019 at $595.375/mt, Platts data showed.

The typical breakeven spread for non-integrated producers is $350/mt and for integrated producers is $250/mt, market sources said. The ethylene-naphtha spread has been above the $250/mt mark since May 12, 2020, Platts data showed.

Asian ethylene prices are currently being supported by tight supply of both local and deepsea cargoes, with South Korea's spot exports limited due to turnarounds and its supplies being largely consumed domestically. The impact of US production lost due to recent freezing weather has also reached the Asian ethylene market, with the shortfall of US term supplies to Asia leading to extra demand in the spot market.

With supply short, CFR Northeast Asia ethylene was assessed at $1,180/mt March 4, a two-year high, Platts data showed. The price was last higher on Feb. 27, 2019, at $1,190/mt, Platts data showed.

Derivative prices soar

In addition, price levels for ethylene derivative products have soared on demand from the polymer, styrene and monoethylene glycol sectors, and as a result buyers are willing to pay more for ethylene amid healthy downstream margins.

Reflecting the bullish sentiment downstream, the styrene was assessed at $1,314/mt CFR China March 4, up $64.50/mt from Feb. 18, while MEG rose $97/mt over the same period to $787/mt CFR China and HDPE surged $160/mt to $1,200/mt CFR Far East Asia (China), Platts data showed.

Positive olefin margins have prompted naphtha-fed steam crackers to continue running at full or close to full capacity.

At the same time, naphtha has remained in demand as a feedstock as LPG was unviable as an alternative feedstock due to winter heating demand and a lack of US Gulf exports due to the polar vortex.

Benchmark C+F Japan naphtha rose $13.50/mt day on day to $591/mt March 4, tracking an uptick in crude oil prices as market participants anticipated OPEC+ would maintain its supply cuts.

Reflecting the firm market, the CFR Japan naphtha physical crack against front-month ICE Brent crude futures also strengthened, rising $1.125/mt day on day to be assessed at $107.25/mt March 4, Platts data showed.