CFR Japan naphtha cash differential falls to 8-month low on sluggish demand

A drop in demand for naphtha as a petrochemical feedstock for the October delivery pushed cash differential for spot cargoes delivered to Japan to over an eight month low on Aug. 20, according to S&P Global Platts data.

Market sentiment was further weighed down by delayed cracker start ups amid maintenance and a softer European naphtha market.

The cash differential for spot naphtha parcels with minimum 65% paraffin content was assessed at parity at the Aug. 20 Asian close, down $5.50/mt on the week and $9/mt since the start of the month, against benchmark Mean of Platts Japan naphtha physical, on a CFR Japan basis, Platts data showed.

The cash differential was last at this level on Dec. 10, 2020, Platts data showed.

For the October delivery cycle, naphtha demand is expected to fall due to a scheduled maintenance at LG Chem's Daesan steam cracker, which produces 1.2 million mt/year of ethylene.

The naphtha end-user demand was further impacted by the delayed restart of Petrochemical Corp. of Singapore's No. 2 naphtha-fed steam cracker at Pulau Merbau following scheduled maintenance, while Japan's Mitsui Chemical also experienced a delay in the restart of its naphtha-fed steam cracker in Chiba. Market sources said both these units are expected to restart over the next two weeks.

In addition, LG Chem had decreased the run rate to 89-90% at its No. 1 steam cracker in Yeosu, which can produce 1.18 million mt/year of ethylene.

Lower crude prices and weaker demand for naphtha as a gasoline blendstock had pressured European naphtha segment, which in turn leads to more availability of Western arbitrage naphtha to flow into Asia. This would also include US Gulf Coast naphtha cargoes, as Europe was earlier competing with Asia for these shipments due to tight supply.

In Asia, naphtha would likely remain in demand as a petrochemical feedstock due to uneconomical price of rival feedstock LPG and positive olefin margins.

The key CFR Northeast Asia ethylene spread to C+F Japan naphtha cargo has rebounded as naphtha prices fell -- the spread was last assessed at $322.875/mt on Aug. 20, up $55.375/mt on the week, Platts data showed. This was above the typical breakeven level of $250/mt for integrated producers, and within the typical $300-$350/mt breakeven level for non-integrated producers.