Asia octane: Key market indicators this week

The Asian naphtha market is expected to lead octane blendstocks this week May 24-28, with recovering demand injecting tailwinds in the near term. Asia's MTBE, toluene, isomer-MX and ethanol markets are expected to face headwinds from new movement curbs and declines in correlated markets.

Naphtha

**The Asian naphtha market is expected to ride a tailwind this week as sentiment for the H1 July delivery cycle is looking positive due to demand growth from new cracker startups in South Korea over H2 June.

**Reflecting the firming sentiment, front-month June-July Mean of Platts Japan naphtha swap spread had widened $1.25/mt week on week to $5.75/mt at the Asian close on May 21, Platts data showed.

**The Singapore reforming spread -- the price difference between Singapore 92 RON gasoline and Singapore naphtha derivative -- had rebounded 70 cents/b week on week to $9.05/b at the Asian close on May 21, Platts data showed.

MTBE

**Demand-side pressures will likely weigh on the Asian MTBE complex this week, with Southeast Asia's appetite for the blendstock declining due to new movement restrictions.

**Malaysia, which on May 20 reported a record high 6,806 new coronavirus cases, announced additional movement restrictions over the weekend. The new curbs, which mandate work-from-home arrangements and limited business capacity, will kick in on May 25.

**In addition to demand-side pressures, the new consumption tax on light cycle oil and mixed aromatics from China is expected to weigh on the MTBE complex moving forward, with Chinese appetite for MTBE imports dented as domestic blending activity slow, sources said.

Toluene

**Asian toluene is expected to face headwinds this week as market participants eye related paraxylene and benzene markets for directional cues.

**The softer paraxylene market had reversed its previous support, a few days after China announced the increase in the consumption tax for imported mixed aromatics.

**The increased import tax for mixed aromatics is expected to raise demand for imported toluene in China, market sources said.

Isomer-MX

**The Asian isomer-MX complex is likely to ease further this week, tracing potential declines in both upstream and downstream markets, industry sources said.

**Across the region, isomer-grade mixed xylene at the Asian close May 21 declined $4/mt on the week at $766/mt FOB Korea, $5/mt on the week at $783/mt CFR Taiwan, and down $7/mt on the week at $788/mt CFR China, Platts data showed. The spread between PX and MX was even noted at its narrowest in almost a year at $49.67/mt, last lower on June 1, 2020, at $45/mt.

**The overall decline was mainly due to China's decision to increase the consumption tax on import of mixed aromatics that will start June 12, market participants said. That said, participants were hopeful the new tax would boost demand for MX as a gasoline blendstock.

Ethanol

**Fundamentals in Asia's ethanol complex are likely to remain weighed down, as elevated US ethanol prices are seen hindering a spike in import demand.

**Although domestic demand for ethanol from the Philippines has started to rebound due to the relaxation of domestic lockdowns, traders have stayed on the sidelines for Q3 2021. According to market sources, buyers were not eager to chase offers with US resupply economics into the Philippines at above $700/cu m.

**The high prices for US ethanol has also impacted the spot market as buyers who had sought cargoes for July having backed way, market sources said.

**US ethanol delivered to the Philippines fell to $727.33/cu m on May 21 Asian close against $736.33/cu m at the Asian close on May 14, Platts data showed.