Asia octane: Key market indicators for May 9-13

Demand for Asian gasoline is expected to strengthen over May 9-13 as activity rebounds after a cluster of public holidays across the region and COVID-19 restrictions continue to ease outside of China, market sources said.

Gasoline blending interest was heard to be high in India, market sources said.

Some renewed interest in gasoline blending was also heard among Chinese refiners amid growing hopes the COVID-19 lockdown in Shanghai may be lifted soon, which could spur an increase in domestic demand, market sources said.

At 0300 GMT May 9, July ICE Brent crude oil futures were up 0.99% from the previous Asian close at $112.83/b, S&P Global Commodity Insights data showed.

Naphtha

** Asian naphtha demand remained weak May 9 as steam crackers operated at lowered rates and used LPG as an alternative feedstock, however naphtha cracks have seen a small rebound as market participants return after various national holidays to procure H2 June delivery cargoes.

** The key CFR Japan naphtha physical crack against front-month ICE Brent crude futures was assessed up $2.925/mt day on day at $72.10/mt May 6 after touching a 16-month low the day before, S&P Global data showed.

** That rebound snapped a near month-long uptrend in the Singapore reforming spread -- the difference between Singapore 92 RON gasoline and the Singapore naphtha derivative was assessed down 11 cents/b day on day at $38.90/b at the Asian close May 6, but was still up $4.60/b week on week, S&P Global data showed.

** The wide reforming spread has made naphtha an attractive blendstock for gasoline in recent weeks, however demand for naphtha as a petrochemical feedstock was likely to remain muted as steam crackers were unable to raise run rates with crude above $100/b, sources said.

MTBE

** The Asian MTBE FOB Singapore marker enters the May 9-13 trading week on an uptrend, bolstered by a bullish upstream energy complex and newly announced EU sanctions on Russian oil, which sparked concerns over tight supply.

** MTBE supply has tightened in May on the back of lower run rates amid high feedstock costs. South Korea's LG Chemical was heard to be lowering the run rate at its MTBE plant to around 80%, market sources said.

** However, rising MTBE supply in the gasoline blending hub of Singapore exerted downward pressure on prices. This came after South Korea's March MTBE exports to Singapore more than tripled from February to 16,990 mt, latest Korean customs data showed, on the back of an earlier rally in FOB Singapore MTBE prices.

Toluene

** Asian toluene prices are expected to remain well-supported over May 9-13 by tight inventories across Northeast and Southeast Asia and continued strong buying interest from South Asia, with no spot cargoes heard available for June from Malaysia, Singapore and Thailand, sources said.

** Several traders were heard sourcing for cargoes with the paraxylene-toluene and benzene-toluene spreads remaining wide, making it favorable for TDP and MTPX producers in South Korea and the US to produce PX and benzene, trading sources said.

** On the other hand, China's buying interest has waned as lockdowns and restrictions hamper domestic operations. An initial wave of exports was placed into South Korea and supplies are now cautiously being held back amid hopes the that pandemic lockdowns will be lifted soon, sources said.

** Seasonal summer driving season demand for gasoline was expected to result in healthy refining margins, with gasoline-Brent cracks and gasoline-naphtha spreads expected to widen, sources said.

Isomer-MX

** June demand for isomer-grade mixed xylene was expected to remain firm as cargo supplies tighten amid Japanese producer Taiyo Oil's turnaround at its 700,000 mt/year isomer-MX capacity, as well as producers prioritizing gasoline production over aromatics due to strong refining margins.

** The PX-MX spread narrowed to a two-year low of $62.67/mt May 6, the lowest since $61.50/mt on May 29, 2020, S&P Global data showed. The spread is key for non-integrated producers of PX that source MX externally and if it remains a low, may force PX producers to consider run cuts or even idling plants, in turn reducing MX demand, market sources said.

Ethanol

** Fuel ethanol purchases for Q3 are expected to increase in coming weeks as buyers look to secure cargoes as prices rise, albeit at a modest pace, market sources said.

** Buying interest was heard for Q3 cargoes and an offer was pegged at $810/cu m CFR Philippines for July delivery.

** Bioethanol was assessed at $839/cu m CIF Philippines May 6, up from $829.67/cu m a week earlier, S&P Global data showed. US ethanol prices continued to be supported by corn values despite an increase in production. US ethanol production averaged 969,000 b/d in the week to April 29, up 6,000 b/d from the week before, US Energy Information Administration data showed May 4.