Asia octane: Key market indicators for Feb 28-Mar 4

Demand for Asian gasoline and its blending components was expected to increase over Feb.28-March 4 amid a reduction in China's gasoline exports moving into March.

Vietnam was heard to be showing interest in building up supplies of gasoline and its blending components as the country strives to increase domestic production in a bid to address a local supply shortage.

Market sentiment appeared to soften at the end of last week after Russia's military invasion of Ukraine Feb. 24, reflected by the key spread between FOB Singapore 92 RON gasoline cargo and swaps values narrowing 12 cents/b day on day to $1.22/b at the Feb. 25 Asian close, S&P Global Platts data showed.

At 0200 GMT Feb. 28, April ICE Brent crude oil futures stood at $102.38/b, up 0.78% from the previous Asian close Feb. 25.

Naphtha

** Buying activity in the Asian naphtha market for second-half April delivery into North Asia will begin this week as the trading cycle rolls forward March 1.

** The Asian naphtha complex was expected to see a mix of bullish and bearish factors in the week, with tight supply likely to support the market amid closed arbitrage lanes from the West and narrowing olefin margins and the Singapore reforming spread weighing on demand.

** Demand for naphtha as a steam cracker feedstock is weak due to thin olefin margins. The key CFR Northeast Asia ethylene to C+F Japan naphtha spread narrowed $71.625/mt week on week to $319.25/mt at the Asian close Feb. 25, Platts data showed. The spread was within the typical breakeven range of $300-$350/mt and likely to prompt some operators to reduce run rates.

** Blendstock demand for naphtha is also likely to be weak after the reforming spread narrowed $1.89/b week on week to $11.85/b at the Asian close Feb. 25, Platts data showed. The narrowed spread makes it economically unviable for gasoline producers to use naphtha as a blendstock.

** In the aromatics sector, the key CFR Taiwan/China paraxylene to C+F Japan naphtha cargo spread narrowed $27.125/mt week on week to $202.25/mt at the Feb. 25 Asian close, below the typical breakeven level of $280-$300/mt, and likely to reduce splitter run rates.

MTBE

** The Asian MTBE market is expected to be volatile this week in the wake of Russia's invasion of Ukraine and the subsequent imposition of sanctions on Russia. The FOB Singapore MTBE price surged to a near 7 1/2-year high at $1,035/mt Feb. 24 before easing to $1,020/mt Feb. 25.

** Oversupply concerns continue, with China's Sinopec Hainan Refining eyeing starting up around 200,000 mt/year of new MTBE capacity in the second half of 2022.

** Tender offers for MTBE emerged last week, with Thailand's BST offering 9,000-15,000 mt of MTBE via a 2022 annual mini-term tender that closed Feb. 25 and India's Haldia Petrochemicals offering 5,000 mt of MTBE for H2 March loading from Haldia in a tender that closed Feb. 24.

Toluene

** Asian toluene demand and supply fundamentals are balancing out as trade moves into discussion for April cargoes, industry sources said. Prices have eased somewhat as end-users have adjusted with other solvents like methanol, but with tensions intensifying in Ukraine, crude oil prices will likely pressure the overall complex higher, pulling toluene prices higher as well.

** China's gasoline blending market remains strong despite pockets of high inventory of domestic ex-tank supplies. Toluene port inventory in east China was down 1,200 mt week on week at 45,600 mt, but in south China stocks have surged to 22,000 mt from 3,300 mt over the past four weeks, sources said.

** "Toluene demand is so-so...it's coming off; people are making do with other solvents," a trader said.

** Southeast Asian market participants remain on the sidelines as they watch the developments in Ukraine. Outages and maintenance shutdowns at plants in South Korea and Southeast Asia have reduced supply, resulting in an almost balanced market, sources said.

Isomer-MX

** Demand for isomer-MX continues to be supported by blending demand and a strong PX-MX spread despite prices surging on crude gains. Some apprehension is likely to remain in the week due to the volatile situation in Ukraine, but the strong backwardation structure between March and April was expected to narrow in the coming days as buying for April ramps up.

Ethanol

** Demand for fuel ethanol in the Philippines is expected to be muted in the week due to a rapid climb in ethanol prices amid tensions in Europe.

** Buying for the second quarter has largely wrapped up, and buyers will return to seek Q3 cargoes in late March. Offers for May stood at $700/cu m CFR Philippines Feb. 25, up from $684/cu m a week earlier.

** US ethanol delivered to the Philippines rose to $687/cu m Feb. 25 from $657/cu m the week before.

** Strengthening corn values supported US ethanol prices in thin trade Feb. 25 as fighting in Ukraine pushed commodity prices higher.