Asia octane: Key market indicators for July 26-30

Headwinds abound for Asian blendstock markets in the trading week to July 30 as high regional naphtha and toluene prices keep end-users and blenders on the sidelines.

Meanwhile supply-side pressures are set to add drag on Asia's isomer-mx and MTBE fundamentals, with plant restarts, incoming arbitrage cargoes and build-ups in inventories expected to weigh on sentiment.

Naphtha

** Participants in the Asian naphtha market are likely to remain on the sidelines this week, with buying for the current H1 September delivery cycle having been muted to date as high prices dampen end-user demand.

** The impact of the lack of buying activity can be seen as backwardation in the Asian naphtha complex narrowed despite stronger crack spreads. The front month August-September Mean of Platts Japan naphtha swap spread narrowed to $9.25/mt July 23, down 75 cents/mt week on week. In contrast, the CFR Japan naphtha physical crack against front-month ICE Brent crude futures hit a 5.5 year high of $130.075/mt July 23; it was last higher Jan. 7, 2016 at $131.975/mt, S&P Global Platts data showed.

** Also a result of the firm naphtha complex, the Singapore reforming spread -- the difference between Singapore 92 RON gasoline and the Singapore naphtha derivative --- crunched to a near five-month low of $6.55/mt July 19 before widening to $7.49/b July 23 amid a firmer Asian gasoline complex.

Toluene

** Participants in the Asian toluene market will likely keep a close eye out for potential arbitrage opportunities this week, with the recent uptrend in US toluene prices and bullish momentum in the US gasoline complex drawing attention.

** Asian toluene prices are expected to remain in a tight range as healthy toluene disproportionation margins continue to draw cargoes away from the gasoline blendpool.

** Healthy demand from the toluene disproportionation sector saw the FOB Korea toluene physical marker reach a seven-session high at $767/mt July 23; it was last higher July 14 at $772/mt, Platts data showed.

Isomer MX

** Supply-side headwinds are expected to keep the Asian isomer-mx market on the back foot throughout the week, especially as Japan's production capacity steadily returns in the second half of the year.

** East China domestic inventories have begun to rise again, touching 84,400 mt July 23, up from 80,900 mt the week before, Platts data showed.

** Traders say sellers continue to dominate the market, with premiums for H2 August cargoes falling amid a bearish market outlook.

MTBE

** The Asian MTBE complex will likely face supply-side headwinds this week, with several cargoes of the high-octane blendstock en route from the Middle East.

** 10,000 mt of MTBE was heard to have been placed on subjects for loading over July 10-15 from the Middle East to the Straits, while another 10,000 mt was heard to have been placed on subjects for loading over July 10-15 for a Middle East to China voyage, sources said.

Ethanol

** The Asian ethanal complex will likely trace lower this week, weakening in line with a bearish US ethanol complex.

** The bearishness in the West was prompted by the release of US Energy Information Administration data showing a surprise 1.384 million-barrel build in US ethanol stocks to 22.518 million barrels week in the ended July 16.

** Offers for ethanol cargoes in the Philippines were heard falling $10/cu m week on week to $680/cu m CFR July 23. This was attributed to muted trading, with only one buyer reported to be seeking cargoes for August-September delivery.