Poor aromatics margins to cap Jan Asian condensates despite strong light ends cracks

Cash premiums for light sweet condensates, including Australia's North West Shelf, could remain rangebound in the January 2022 loading cycle as weaker aromatics margins offset rising naphtha and gasoline cracks, market participants said Nov. 11.

Earlier in the week, the January loading program for North West Shelf condensate appeared with three 650,000-barrel cargoes, steady on the month.

Chevron will be holding one cargo for Jan. 4-8 loading, BP holding one cargo for Jan. 14-18 loading, and BHP holding the final cargo for Jan. 25-29 loading.

Indonesia's Pertamina, which purchases on behalf of PT Trans-Pacific Petrochemical Indotama, was seeking 650,000 barrels of condensates for its Tuban refinery for Jan. 15-23 delivery via a tender that closed Nov. 10, S&P Global Platts reported earlier.

Most recently, Pertamina bought a 650,000-barrel cargo of NWS condensate from Shell for Jan. 1-5 delivery for its Tuban refinery at a premium of around $4/b to Platts Dated Brent, CFR Tuban, translating to around mid-to-high-$2s/b to Dated Brent on an FOB basis, traders said.

The emergence of the buy tender could support the sentiment and offer some support to condensate cash premiums.

However, condensate traders were bearish amid lower refinery run rates and poorer aromatics margins.

Traders valued January-loading barrels of NWS condensate at a premium of around $2/b to Platts Dated Brent assessments, FOB, down from mid-$2s/b FOB for December-loading barrels.

"Aromatics margins are bad and demand on condensate for paraxylene is not good," said a Singapore-based condensate trader.

"Naphtha cracks are healthy, but January-loading condensate prices depend on Pertamina's procurement and how much they buy," said another condensate trader.

"China's Fuhaichuang has completed procurement for January delivery and with South Korean refineries reducing run rates, sentiment not entirely bearish but there's limited potential upside," added the second trader.

In addition, pockets of unsold December-loading barrels, including Alba and Escravos condensates, and weaker paraxylene margins could continue to dampen regional condensate differentials, according to traders.

Nevertheless, naphtha and gasoline product cracks were seen to continue trending higher. The second-month naphtha and gasoline swaps crack spreads versus Dubai crude swap have averaged $4.13/b and $11.19/b in November to date, up from $3.02/b and $10.94/b over October, respectively, Platts data showed.

Strong Asian naphtha market

The Asian naphtha complex has been firm as positive olefins margins fueled demand for naphtha as a steam cracker feedstock and on tight supply from low levels of Western arbitrage.

"Market is very tight, supply is one of the reasons," said a naphtha end-user.

"[The] olefins margin is good, so [steam crackers] have no reason to cut down the naphtha cracking," said another naphtha end-user.

Furthermore, seasonally high LPG prices in line with winter demand meant the use of naphtha was maximized as a steam cracking feedstock.

However, the aromatics sector was weighed by weak downstream demand. The PX-naphtha spread remained under the typical breakeven range of around $280-$300/mt, at $135.75/mt at the Nov. 10 Asian close, and narrowing $6.875/mt day on day, Platts data showed.

The weak margins had weighed on operating rates for splitters and thus their consumption of naphtha feedstock. However, splitters were also keen to maintain run rates to produce light naphtha feedstock due to the tight market for high paraffin cracker-feed naphtha.

Market participants said it could be more economical to use condensates as an alternative splitter feedstock due to the firm light naphtha market.

"Light naphtha is quite strong, [there is] incentive to buy cheaper heavy full-range naphtha and split to [produce] light [naphtha]. Overall, we're not decreasing run rates [from 80%]," said a splitter operator.