Australia's Feb-loading NWS condensate valuations seen lower on easing cracks, sluggish margins

Australia's North West Shelf condensate cargoes scheduled for February loading were valued lower due to easing naphtha cracks and lackluster downstream petrochemical margins, according to sources.

The February-loading program emerged with two 650,000-barrel cargoes of NWS condensates scheduled, stable month over month, sources said.

Japan's Mitsui holds the first cargo scheduled for loading over Feb. 10-14, while oil major Shell holds the second cargo for Feb. 25-March 1 loading.

Valuations for February-loading NWS condensates were heard at discounts of $3s-$4s/b to Platts Dated Brent crude assessments, FOB, lower than January-loading barrels, which had traded at discounts of $1s-$2s/b over the same benchmark.

"NWS [in the] last cycle was too overvalued," a trader said. "Naphtha cracks are undergoing a correction; cracks are where they should be."

The Platts-assessed second-month naphtha swaps crack against Dubai crude swaps has averaged minus $4.46/b so far in December, compared with an average of minus $3.33/b in November, S&P Global Commodity Insights data showed.

Meanwhile, sources said condensate supply is expected to remain steady, while persistently weak downstream petrochemical margins continue to weigh on the complex.

"Petrochemical margins are now worse than refinery margins; I am still struggling to see any upside for [the former]," a trader said, adding that while paraxylene-naphtha margins were expected to strengthen in the February-loading cycle due to the Lunar New Year holiday, this has not materialized.

Focus remains on crude and condensate re-tender from Indonesia's Pertamina for February delivery, which closed Dec. 9 and was valid until Dec. 11. Results of the tender could not be ascertained at the time of writing.

"Every trader is waiting for the results to know the February market level," a market source said.

Eyes are also on QatarEnergy's monthly spot tender, offering deodorized field condensate and low sulfur condensate in 500,000-barrel cargoes. The tender closes Dec. 16, with next-day validity.

The company previously sold a 500,000-barrel cargo of LSC for January loading to Aramco Trading Co. at a premium of $1s/b to Platts front-month Dubai crude assessments, FOB, and last sold November-loading DFC cargoes at premiums in the high $1s/b to $2/b range to the same benchmark.

Aromatics slowdown pressures naphtha

In the latest spot tenders for heavy full-range naphtha, South Korea's Hanwha TotalEnergies purchased at least 25,000 mt of grade A and C heavy full-range naphtha for second-half January delivery to Yeosu, according to market sources.

Grade A was bought at a premium of around $9/mt to Mean of Platts Japan naphtha assessments, while grade C was procured at a premium of around $5/mt to MOPJ naphtha assessments, CFR, pricing 30 days prior to delivery.

In comparison, the company previously purchased at least one 25,000-mt cargo of grade C heavy full-range naphtha for H1 January delivery to Daesan, at premiums of around $4-$6/mt to MOPJ naphtha assessments, CFR, pricing over H1 December prior to delivery.

In addition to its condensate tender, Pertamina is seeking up to 44,000 mt of naphtha for February delivery to TPPI Tuban via a spot tender that closes Dec. 11, with validity until Dec. 17, according to trade sources.

Condensate or heavy full-range naphtha is typically used as feedstock for splitter operators.

Market participants believe that increased gasoline blending, driven by higher reforming margins recently, may lend some support to aromatics production, despite sluggish aromatics margins.

Aromatics margins remain unhealthy, hovering below the typical breakeven level of around $280-$300/mt. The spread between CFR Taiwan/China PX and CFR Japan naphtha physical averaged $182.70/mt as of the Dec. 12 Asian close, widening from an average of $178.07/mt in November.

The slowing aromatics sector will weigh on the demand for heavier grades of naphtha, with an analyst from Commodity Insights saying in a report, "Splitter operators may prefer to purchase full-range naphtha as a splitter feedstock to sustain their petrochemical operations, with splitter runs likely to decline on weaker margins."