Asia octane: Key market indicators this week

The Asian naphtha and ethanol complexes will likely lead octane blendstocks this week June 7-11 as incremental demand from new steam crackers help support naphtha, while a recovery in the Filipino economy buoy ethanol demand.

That said, regional blending activity remains poor due to Southeast Asia's ongoing battle with a new wave of the coronavirus, a factor that has remained a drag on Asia's toluene and MTBE markets.

NAPHTHA

**The Asian naphtha complex is expected to stay firm this week, with fresh demand expected from South Korea's new steam crackers. The CFR Japan naphtha physical crack spread against front month ICE Brent crude futures rallied $3.80/mt week on week to over a two-month high of $97.65/mt on June 4, Platts data showed.

**A crude-fueled high in outright naphtha prices will likely cap the bullishness, with Asian naphtha market participants having already seen a slow start in buying activity for the H2 July delivery cycle. The benchmark C+F Japan naphtha hit more than 2 1/2 year high of $635.63/mt on June 4, Platts data showed.

**The Singapore reforming spread -- the difference between Singapore 92 RON gasoline and Singapore naphtha derivative -- widened from $8.20/b on May 31 to $9.34/b on June 4 as gains in the gasoline complex outpaced that of naphtha, Platts data showed.

MTBE

**Tepid MTBE demand is expected to weigh on high-octane blendstock this week as weakening demand in Southeast Asia outpaces any uptick in Chinese demand.

**The lockdown in Malaysia has been a major driver leading to a slowdown in 95 RON gasoline blending activity and together with lackluster demand from Vietnam and Myanmar, blending activity remain thin. MTBE cargoes, which had earlier been sold to Malaysia, were reportedly being diverted to other countries such as China, which has seen an uptick in MTBE import activity, sources said.

**In fact, 5,000 mt of MTBE was heard loading from Kuantan, Malaysia over June 5-10 with discharge in South China, while a 5,000 mt cargo was also due to be loaded from Onsan, South Korea over H1 June, heading to Caojing, China, Platts reported earlier.

TOLUENE

**The use of toluene in Asia's blendstock market will likely stay muted this week as relatively high prices combined with lackluster regional interest keep blenders away, sources said.

**Toluene prices have of late, remained at lofty levels due to tight supply in South Korea and Japan as well as strong demand for toluene from the disproportionation sector, Platts reported earlier.

**Over May 31-June 4, the physical FOB Korea toluene averaged $757.20/mt, higher than more economical blendstock substitutes such as MTBE. The FOB Singapore MTBE averaged $726.20/mt over the same period, Platts data showed.

ISOMER-MX

**Supply-side pressures are expected to weigh on the Asian isomer-mx market this week, with news of refinery restarts and test runs set to raise regional supply.

**The Philippines' Petron Corp was reported to be restarting operations at its 180,000 b/d Bataan refinery in early June. The refinery has a reformer unit, which can produce around 220,000 mt/year of mixed xylenes, 144,000 mt/year of toluene and 150,000 mt/year of benzene.

**Taiwan's Formosa Chemicals and Fibre Corp. also started test runs last week at its new 140,000 mt/year meta-xylene plant as well as a downstream 200,000 mt/year purified isophthalic acid plant, both at Ningbo in eastern China, a source close to the company said on June 3. Commercial production was likely to start by July, the source said.

ETHANOL

**Fundamentals in the Asian ethanol market is expected firm this week, with a recovery in the Philippines' domestic economy as well as higher gasoline demand driving the blendstock. Industry sources reported having heard that buying interest in cargoes for the August delivery cycle has improved from July, when most buyers were on the sidelines.

**Bearish ethanol production data coupled with weakness in corn values are likely to cap the bullish momentum in Asian ethanol prices, sources said. US ethanol production averaged 1.034 million b/d in the week ended May 28, having risen above average market expectations by 23,000 b/d week on week, the Energy Information Administration data showed. Corn futures weakened as forecasts showed better rainfall in the growing part of US.

**US ethanol delivered to the Philippines as such fell to $695/cu m on June 4 against $$719.33/cu m on 28 May, Platts data showed.