Asia's naphtha end-users expand import origins as trades flow evolve

Asia's naphtha end-users have begun to take in cargoes from a wider variety of origins in 2022 while seeking to cover requirements economically amid geopolitical constraints in the wake of Russia's invasion of Ukraine, market sources said.

An increase in naphtha exports was being observed from Fujairah in the UAE, Pakistan and Tunisia in ship tracking data as market participants seek out alternative sources to replace Russian-origin cargoes, the sources said.

Asia's naphtha end-users have traditionally largely acquired cargoes loaded directly from refiner facilities in order to safeguard quality. Cargoes from commercial storage tanks may be mixed, resulting in some cases of off-specification cargoes.

Since 2021, Asia's naphtha end-users have increasingly imported light paraffinic naphtha cargoes from the US Gulf Coast, which is from commercial storage tanks. Sellers were able to meet Asia buyers' quality requirements, at a time when high paraffin content light naphtha grades were in demand for olefin production.

As a result, naphtha flows from the Americas to Asia surged to around 8.3 million mt in 2021 from 2.8 million mt in 2020, data from market sources and Platts cFlow ship and commodity tracking software from S&P Global Commodity Insights showed.

Change in 2022

Buyer appetite changed again in 2022 as olefin production margins narrowed and naphtha-fed steam crackers cut run rates in the wake of Russia's invasion of Ukraine.

The ongoing Russia-Ukraine war meant some naphtha end-users were unable to purchase naphtha feedstock from Russia as before, which led to increased competition for cargoes from Middle East producers and more cargoes of alternative origins being offered.

Fujairah's naphtha exports to Asia have jumped sharply in the second half of 2022 from 169,000 mt in June to 539,000 mt in October, Kpler shipping data showed.

Naphtha exports from Pakistan spiked to 416,000 mt in September from 100,000-300,000 mt/month over January-August, and rose further to 462,000 mt in November, Kpler data showed.

Notably, shipments of naphtha from Tunisia to Asia have been recorded since August, cFlow data showed. At least seven LR2 tankers laden with around 560,000 mt of naphtha have sailed from La Skhirra to various East of Suez ports, cFlow data showed.

Some feedstock buyers for naphtha-fed steam crackers have also moved to purchase cargoes from commercial tankage in Fujairah and the Straits region, which is more competitively priced than that sold directly by Middle East refiners, sources said.

While the overall cut in operating rates had decreased Asia's naphtha demand since Q2, Asia is typically net short of around 2 million mt/month of naphtha, which it meets largely through shipments from Europe.

Russian exports of naphtha typically range around 500,000 mt/month and rebounded from 72,000 mt for May-loading cargoes to 535,000 mt for November loading cargoes, data from market sources and cFlow showed. These Russian naphtha exports are typically heavier grades used by splitters, thus leading to high competition for full range naphtha cargoes from Middle East refiners.