Asia octane: Key market indicators this week

Singapore — The Asian octane market is poised to face headwinds this week April 26-30, with growing supply of naphtha, toluene and MTBE adding downside pressure to the prices of their respective complexes.

Meanwhile, the isomer-mx market will likely take the lead among its blendstock counterparts, with tightened supply driving fundamentals. The Asian ethanol complex will also take cues from non-Asian factors, while keeping a close watch on corn supply from the US and Brazil.

NAPHTHA

**Asian naphtha market sentiment is expected to stay tepid this week, with ample leftover supply in the region stemming from a lack of demand from steam crackers in Europe and Asia, both of which have turned to use LPG as an alternative steam cracker feedstock, sources said.

**Front-month May-June Mean of Platts Japan naphtha swap timespread demonstrates this downside pressure, having been assessed at $3.75/mt at the Asian close on April 23, down 50 cents/mt week on week, Platts data showed. The Asia naphtha physical crack against ICE Brent crude futures also fell to $72.10/mt on April 23, last lower on Feb. 15, 2020 at $71.55/mt, Platts data showed.

**A wide reforming spread has helped support the Asian naphtha complex as demand from gasoline blenders emerge. The Singapore reforming spread -- calculated as the difference between FOB Singapore 92 RON gasoline and FOB Singapore naphtha derivative -- marked a fresh multi-month high the past week, reaching $11.76/b on April 20, a level last higher on May 5, 2020 at $11.95/b, Platts data showed.

TOLUENE

**Fundamentals in the Asian toluene market is currently stable to slightly oversupplied, market sources said.

**Emerging reports of a slight decline in toluene inventory in East China, from around 57,000 mt to 53,500 mt in the week ended April 23, is evident of consumption in the domestic Chinese market, despite being subdued.

**Against this backdrop, buying interest for toluene from regional blenders have stayed stable to lower, with the use of MTBE still more attractive. FOB Korea toluene was assessed at $715/mt on April 23, only marginally lower than the FOB Singapore MTBE physical marker, which was at $726/mt, Platts data showed. For blending margins to be in favor of toluene, its price would have to be at around $30/mt lower than MTBE, sources said.

MTBE

**The Asian MTBE market this week will focus on late-May delivery cycles, with ongoing demand for cargoes from Malaysian end-users and blenders.

**Meanwhile, the South China MTBE market will likely remain weak, with a nagging oversupply continuing to drag down domestic values, resulting in low bids from participants in the South Chinese market.

ISOMER-MX

**The Asian MX complex remains bullish, supported by tight supply due to ongoing turnarounds at key exporter Japan, which had resulted in the spread to naphtha widening to more than $200/mt at the end of April 19-23.

**PX demand has been kept firm, stemming mainly from China-based PX producers. MX inventory in East China, in that regard, was reported to have dropped to the lowest since late April 2020, currently at about 67,000-68,000 mt, Platts data showed.

**The tight MX supply could partially be a result of increased gasoline production by refiners, which has in turn led to lower aromatics production.

ETHANOL

**Ethanol prices will likely remain supported due to non-Asian factors, with inclement weather in the US and Brazil inciting worries over supply of corn, the base input for ethanol production.

**Platts assessed the CIF Philippines fuel-grade ethanol at $677/cu m on April 23, a 9.78% week on week jump and the highest since Nov. 28, 2014 at $682.67/cu m.

**Notwithstanding the strength in ethanol prices, demand remains bearish as participants keep on the sidelines due to poor domestic demand and the sharp spike in US ethanol prices. A trader, however, estimated that buying for the July delivery cycle could take place in mid-May, while another market participant cast doubts over the rise in ethanol demand, especially since the Filipino government has yet to ease domestic lockdowns