Asian naphtha flat price tumbles 23.7% day-on-day to reach 4-year low

Singapore — Benchmark CFR Japan naphtha flat prices nosedived 23.7% day on day to a four-year low of $311.875/mt Monday on the back of a plunge in crude prices and weak demand for naphtha as a petrochemical feedstock.

The naphtha benchmark fell $96.88/mt day on day. It was last lower on February 24 2016 at $307.50/mt, according to S&P Global Platts data.

At 4:30 pm Singapore time (0830 GMT), front month May ICE Brent crude futures were $13.24/b (26.92%) down from Friday's settle to stand at $35.94/b.

The Asian naphtha complex had been reeling from the weaker Chinese downstream petrochemical demand due to the coronavirus outbreak, in addition to the fresh downturn in demand last week from the shutdown of Lotte Chemical's Daesan steam cracker.

"Lotte Chem's Daesan cracker situation is absolutely a bearish factor, but on the other hand there are some problems for Middle East supply, as Abu Dhabi and Kuwait were looking to defer liftings to several buyers, which is absolutely bullish for naphtha," said a North Asia-based naphtha trader.

The drop in flat price for naphtha was expected to attract bargain hunters, and no changes in steam cracker run rates were heard from Southeast Asia and Japan, said sources.

"If the market goes down drastically, then bargain hunters will come, and only Korean crackers were heavily impacted by the coronavirus, so if margins improve because of this, other crackers will have more reason to not cut runs," said a Singapore-based naphtha trader.

Market sentiment had weakened as market participants were taking a "wait and see" attitude to the unfolding events, leaving trading activity lackluster since last Wednesday.

In the naphtha derivatives market, the April/May Japan naphtha timespread narrowed sharply by 88.9% to flip into a contango structure of minus 25 cents/mt at Monday's Asian close. The spread was last at this level on August 30, 2019, Platts data shows.

"The running ratio for petrochemical plants in Korea has already been cut because of low demand in China, now with the crude flat price down, cracks will improve temporarily," said a Singapore-based naphtha trader.

The CFR Japan physical naphtha crack against front-month ICE Brent crude futures stood at $42.325/mt at Monday's Asian close, up $2.425/mt day on day, but lower than the $61.539/mt averaged over February.