Asia octane: Key market indicators for April 4-8

Demand for Asian gasoline is expected to remain supported over April 4-8 as regional economies are set to ease COVID-19 travel restrictions, market sources said.

Many states in India, such as Maharashtra, Delhi and West Bengal have discontinued COVID-19 restrictions relating to face masks and ban on social gatherings, with Tamil Nadu having announced the lifting of all COVID-19 restrictions on April 3, according to local media.

Interest in gasoline blending was also heard increasing, with blenders eyeing naphtha in particular, due to favorable margins, market sources said.

However, blending interest may weaken going forward on higher gasoline supplies from China, which could also put pressure on gasoline prices.

At 0238 GMT April 4, June ICE Brent crude oil futures were up by 0.39% from the previous Asian close April 1 at $103.64/b, S&P Global Commodities Insight data showed.

Naphtha

** Demand for naphtha as steam cracker feedstock could see some support on improving ethylene-naphtha margins, sources said. However, derivative downstream margins remained poor and weighed on the recovery of the complex.

** The key CFR Northeast Asia ethylene and C+F Japan naphtha remains well above the typical breakeven levels of $300-$350/mt and would theoretically incentivize operators to increase run rates in crackers, sources said. The spread widened $107.50/mt week on week to $511.50/mt at the Asian close April 1, S&P Global data showed.

** Conversely, the polyethylene-naphtha margin remains below the typical breakeven of $450/mt, with the high density polyethylene film CFR Far East Asia to CFR Japan naphtha physical spread at $351.50/mt at the Asian close April 1, S&P Global data showed.

** Estimated run rates at Asian naphtha-fed steam crackers are also expected to decrease from March levels. Steam cracker operators in China and South Korea expected to reduce rates further to 80% in April, amid weak ethylene demand and high naphtha costs. In Japan, steam crackers are expected to face increased pressure to lower run rates in April with more crackers returning from maintenance.

** Sources said that blendstock demand for naphtha will be bolstered as blending season for gasoline has started. The reforming spread held firm at $20.18/b at the Asian close April 1, up $7.28/b on the month and $3.02/b from the March average of $17.16/b, S&P Global data showed. The widened spread makes it economically viable for gasoline producers to use naphtha as a blendstock, sources said.

** On the supply side, Indian refiners were increasing run rates on higher refining margins, having concluded their financial year on March 31, resulting in longer supply from the country, sources said.

MTBE

* Asian MTBE FOB Singapore price is expected to stabilize this week, tracking the upstream energy complex amid an easing supply crunch from the US SPR release and OPEC+ output hike.

* The MTBE demand, however, is expected to remain buoyed, on the back of stronger gasoline blending demand amid the upcoming Ramadan festive season in Southeast Asia and the spring-summer driving season in Northeast Asia, sources said.

* Supply-wise, Chinese Sinopec Hainan Refining & Chemical reportedly plans to start its new MTBE plant with a nameplate capacity of around 100,000 mt/year in Hainan in the second half of 2022, market sources said.

Toluene

**The Asian Toluene market is likely follow the upstream price movement in the coming week, while the FOB Korea marker was last assessed down by $10/mt on the day at $1,025/mt on April 1, S&P Global data showed

** Sources expected that China's producers will continue to show export interests due to ample domestic supply.

** Trade participants are closely monitoring the development of the COVID-19 outbreak in China, in terms of city lockdowns.

Isomer-MX

** Continued crude price volatility and the toll of the pandemic spread in China is expected to continue putting downward pressure on prices. Prices fell at the end of the week to settle at $1,061/mt FOB Korea, S&P Global data showed.

** The CFR China market has weakened considerably as the focus has moved towards domestic East China market for meeting the requirements, added market sources. The spread between CFR China and FOB Korea was assessed at flat April 1, S&P Global data showed.

Ethanol

** Buyers in the Philippines are expected to return to the market to book fuel ethanol for Q3 delivery between Mid and end April

** Meanwhile, buying interest for fuel ethanol increased for late Q2 delivery. An offer for a cargo delivering in Q2 was reported on April 1, pegged at $735/cu m CFR Philippines was spotted.

** Weakening corn values coupled with a 381,000 barrel increase to US ethanol stocks in the week ended March 25 caused ethanol prices to dip.

** The bioethanol CIF Philippines marker fell to $732/cu m on April 1 against $750.33/cu m on March 25, S&P Global data showed.