Asia octane - Key market indicators this week

Singapore — Sluggish demand for gasoline across Asia continues to be an overarching theme depressing the Asian gasoline blendstocks markets, with eyes from blendstocks traders seeking directional moves from non-gasoline related factors in the week ending Jan. 30.

The bearishness comes even as outright gasoline prices rose to pre-pandemic levels, with the price of FOB Singapore 92 RON, 95 RON and 97 RON gasoline being assessed at $59.07/b, $59.94/b and $60.95/b, respectively, at the close of Asian trade Jan. 22, mostly steady on the week, Platts data showed.

However, the aforementioned climb in gasoline prices comes amid stronger international crude prices as well as a well-supported US RBOB-Brent crack, industry sources said. In fact, traders in the current week will be eying any news of additional movement restrictions, which would incite more bearishness into the motor fuel complex.

Key demand centers in Southeast Asia such as Malaysia, Indonesia, Philippines and Thailand have all seen driving activity fall below baseline levels, according to mobility data from Apple.

Naphtha

**The Singapore reforming spread, which is calculated as a difference between FOB Singapore 92 RON gasoline and FOB Singapore naphtha derivative, widened $1.75/b on the week to $4.75/b at the Asian close Jan. 22, Platts data showed.

**The widening, however, was a result of a retreat in naphtha prices, as healthy arbitrage volumes and weaker margins downstream weighed on trading sentiment.

**The spread between CFR Taiwan/China paraxylene marker and CFR Japan naphtha physical was on an uptrend over Jan. 18-21, but narrowed $3/mt on the day to $171/mt at the Jan. 22 Asian close, Platts data showed.

**While margins have averaged higher in January to date at $171.31/mt compared to the December 2020 average of $153.19/mt, the spread remains in the typical breakeven of around $280-$300/mt. Market sources said this was unlikely to incentivize splitters to increase run rates yet.

Toluene

**The FOB Korea toluene physical assessment stood at $548/mt on Jan. 22, with the MTBE-toluene spread narrowing to a 2-week low of minus $11/mt.

**Against the backdrop of a balanced Asian toluene market, gasoline-blending activities were not gaining any visible traction, sources said. Even though there had been sporadic off-take of toluene around the Straits for blending, price support was drawn mainly from the solvent distribution business, rather than for gasoline blending.

**In Northeast Asia, the East China domestic toluene market showed some improvement but stockpiling activities were muted on concerns of somnolent road fuel demand.

Isomer mixed xylenes

**Isomer-MX was last assessed at $577.50/mt FOB Korea and $592.50/mt for CFR China and CFR Taiwan on Jan. 22. The spread to key downstream product paraxylene deteriorated in the week of Jan. 23 and ended at $87/mt on a CFR basis on Jan. 22, which could have a negative impact on MX demand.

**That said, isomer-grade mixed xylene demand in the key China market has been improving with a drawdown in Chinese inventory level and rising domestic prices. Gasoline blending demand remains slow for the moment, but traders are eying a contango market with the gasoline-blending and solvents demand typically increasing towards the summer season in China.

MTBE

** The MTBE FOB Singapore marker was assessed at $559.50/mt on Jan. 22, staying locked within the mid-to-high $500/mt level on the back of persistent bullishness in the energy complex.

**Although, the MTBE gasoline blending margin remained in the positive territory ahead of the Lunar New Year holidays, traders were concerned that the resurgence of the COVID-19 cases and subsequent lockdowns in Asia would derail the recent bullishness.

** Against this backdrop, new MTBE capacity scheduled to come online in 2021 will also weigh on MTBE prices. According to market sources, around 610,000 mt/year of new MTBE capacity may be added in 2021 across Asia.

Ethanol

**US ethanol delivered to the Philippines was assessed at $504.33/cu m on Jan. 22, down $5.67/cu m, or 1.1%, on the week, as rising COVID-19 cases dampened demand for gasoline and fuel ethanol.

**US ethanol futures also tracked corn values lower, which fell on profit taking after sharp rise a week before. Signs that US farmers will increase corn planting acreages in the spring coupled with expectations of higher crops in South America weighed on the overall sentiment.

**Ethanol buyers are sitting on $470-$480/cu m CIF Philippines with offers slightly above $500/cu m. Purchases for Q2 2021 are expected to be concluded in the coming weeks, but that said, the volumes expected to be concluded are not likely to be much higher than in Q1 2021, sources said.