Asian ethylene-naphtha spread widens as Lotte Chem delays restart of Daesan cracker

Singapore — The spread between Platts CFR Northeast Asia ethylene and physical CFR Japan naphtha widened $3.25/mt on July 20 on tight supply, exacerbated by the delayed restart of South Korea's Lotte Chemical's fire-hit naphtha-fed steam cracker in Daesan for the second time to mid-November, from October. It had initially planned to restart the cracker in September.

"The restart has been moved back to mid-November, but could be delayed again," a company source told S&P Global Platts. Lotte Chemical has plans for the cracker to operate as per normal by the end of 2020.

The cracker was shut on March 4 following an explosion, which injured more than 30 people, Platts reported previously.

Lotte Chemical has two steam crackers. The company's other steam cracker in Yeosu is currently running at more than 100% of capacity due to positive petrochemical margins.

The company last purchased 50,000 mt of naphtha for H2 August delivery to its Yeosu steam cracker, at a premium of around $21/mt to the Mean of Platts Japan naphtha assessments, CFR, pricing 30 days prior to delivery.

The Asian ethylene market is tight on supply due to the upcoming turnaround of four crackers -- SP Chemical Taixing, Formosa Mailiao, Idemitsu Tokuyama, and YNCC Yeochon -- from end-July to October, putting the total capacity loss at around 3.05 million mt/year.

However, the ethylene complex was lacking direction on concerns over whether downstream demand could support prices, and sluggish demand for ethylene oxide due to heavy rains in China.

"The EO prices are down by Yuan 600/mt in China domestic [on July 20], which leads to some bearish sentiment to the ethylene market because EO considered to be one of the most profitable downstream products that supports ethylene spot prices," a trader said.

The spread between CFR Northeast Asia ethylene and CFR Japan naphtha physical rose to $424.125/mt on July 20, up $3.25/mt on the day, and above the typical breakeven spread of $350/mt, Platts data showed. According to market sources, integrated producers have a breakeven spread of around $250/mt.

Healthy olefin margins have been a key factor supporting full or close to full run rates across Asian steam crackers -- the spread between FOB Korea propylene and naphtha C+F Japan cargo assessments was at $409.125/mt at the July 20 Asian close, up $8.25/mt on the day, Platts data showed. The typical breakeven level for propylene to naphtha is around $250/mt, market sources said.

The steam cracker in Daesan has a production capacity of 1.1 million mt/year of ethylene, 550,000 mt/year of propylene and 150,000 mt/year of butadiene, while the Yeosu steam cracker is able to produce 1.18 million mt/year of ethylene, 550,000 mt/year of propylene and 130,000 mt/year of butadiene.