Asian butadiene-naphtha spread hits three-month low amid weak US demand

Asian butadiene-naphtha spread crunched to a three-month low Sept. 9, as butadiene demand in the US remained weak, even though Hurricane Ida cut some supply at the country's plants, S&P Global Platts data showed.

The spread between CFR China butadiene and CFR Japan naphtha physical values narrowed $59.125/mt day on day to $597.375/mt Sept. 9, to lowest since touching $560/mt on June 17, Platts data showed. The butadiene-naphtha spread has been above $250/mt since Feb. 19, above the minimum typical breakeven levels of $250-$300/mt.

HIGH BUTADIENE SUPPLY

Asian butadiene prices have been on a decline since late August after buying appetite from the US slowed. Lower supply because of Hurricane Ida-led petrochemical plant closures in the US did not lift demand, market sources said.

Hurricane Ida struck the US Gulf Coast on Aug. 29 forcing closures at several petrochemical plants. Shell's 265,351 mt/year Norco butadiene plant remained idle as of Sept. 9, S&P Global Platts reported earlier.

"Butadiene inventory in the US is very high, as end-users bought more than enough until October," a trading source said.

Asia's butadiene supply also remains high, as China -- a key importer of the product -- accelerates its exports with new capacity coming on stream.

In July-August, China started two plants with a combined capacity of 270,000 mt/year of butadiene, while its July butadiene imports fell 36% on the month to 7,984 mt, the lowest since August 2019, the country's customs data showed.

CRACKER DEMAND SUPPORTS NAPHTHA

Meanwhile, Asia's naphtha market has been supported by healthy olefin margins and limited Western arbitrage supply, due to the hurricane-hit refinery operations in the US Gulf Coast.

Positive margins for ethylene production are likely to keep steam crackers operating at high levels to support demand for cracker-feed naphtha, sources said.

The spread between CFR Northeast Asia ethylene and C+F Japan naphtha widened to reach a 14-week high of $401.50/mt at the Asian close Sept. 8 but narrowed slightly to $392.375/mt Sept. 9, as naphtha prices rose tracking gains in crude, Platts data showed. The spread was still above the typical breakeven level for non-integrated producers at $350/mt, market sources said.

The benchmark C+F Japan naphtha cargo was last assessed at $672.62/mt Sept. 9, up $9.13/mt day on day, and $19.63 higher from a week ago, Platts data showed.

The Asian naphtha market relies on Western arbitrage shipments to meet the region's net shortfall of more 2 million mt per month, of which at least 500,000 mt is sourced from the US Gulf Coast. The combined naphtha arbitrage shipments loaded in August from the US Gulf Coast, Peru and the US West Coast totaled at least 756,000 mt, data from market sources and Platts cFlow showed.