Asia light ends - key market indicators this week

Singapore — The Asian light ends market inched higher mid-morning July 6 as LPG and gasoline demand are expected to remain firm, while stronger fundamentals underpin the prevailing strength in the Asian naphtha complex.

The market was also buoyed by steady crude oil futures, with the September ICE Brent crude futures at $42.96/b at 0300 GMT July 6, marginally higher from the $42.67/b at the July 3 Asian close.

LPG

** Front month August CP propane swap was notionally pegged at $343/mt July 6, up from $339/mt on July 3. August/September CP propane swaps narrowed to a notional backwardation of $1/mt, compared with a $2/mt backwardation on July 3, reflecting a bullish expectation for Q4 in anticipation of a recovery in Indian demand following the gradually drawdown of inventory, which is likely to boost imports from the Middle East.

** Propane demand from Asian steam crackers is expected to remain supported by partially switching to LPG as feedstock through July, as the downstream ethylene market outperforms the aromatics -- making LPG more attractive -- as LPG yields more ethylene and propylene as compared with naphtha, which yields more aromatics.

** Abu Dhabi National Oil Co. is due to announce acceptances of term nominations for August-loading cargoes later this week, with no cancellations or major delays expected. ADNOC, had announced acceptances of term LPG nominations for July loading without cuts or delays after term lifters reduced nominated volumes from usual levels.

** Supply from Middle East producers has been reduced for August, in line with production cuts by OPEC+ members that were extended to July. However, pressure remains on the FOB AG market amid soft demand due to influx of competitively priced Western cargoes.

GASOLINE

**The August FOB Singapore 92 RON gasoline opened July 6 at around $45.40/b, inching up marginally from the previous trading session on the back of support from a higher US RBOB/Brent and improved Asian fundamentals.

**The former is expected to trend higher this week, led by expectations of increased driving over the US Independence Day weekend. At 0230 GMT, US RBOB/Brent cracks was at $9.92/b, the highest since June 24 when it was at $11.86/b.

**Meanwhile, Asian gasoline demand is expected to stay firm as the Philippines, Vietnam, Thailand and Japan continue to import cargoes amid tepid domestic refinery run rates as well as the increase driving activity.

**This week, eyes will also be on negotiations surrounding state-run Pertamina's 88 RON gasoline term tender. Offers are due for submission on July 6, and will cover term deliveries from August to December. Since March, Pertamina, the region's largest buyer of gasoline, has kept import volumes low due to the coronavirus pandemic, having even to defer some previously bought cargoes. Should Pertamina show signs of a pick-up in import volumes, sentiment in the Asian gasoline complex is likely to turn positive, sources said.

NAPHTHA

** The CFR Japan naphtha physical benchmark opened July 6 at $395.875/mt, up $7.75/mt from the Asian close on July 3, boosted by higher crude markers.

** The front month August/September Mean of Platts Japan naphtha swap spread remained rangebound, however, falling 25 cents/mt day on day to $5.50/mt at the Asian close on July 3. The backwardation, however, widened mid-morning July 6, with broker indications for the spread at $5.75/mt.

** Sentiment was firm on the back of tight supply and robust demand from high steam cracker operating rates, which boosted cash differentials for CFR Japan spot naphtha parcels to $22/mt at the July 3 close, last higher on February 13 at $23/mt, Platts data showed.

** Since trading activity for the H1 August delivery cycle in Asia began, cash differentials for CFR Japan spot naphtha parcels doubled to plus $18/mt on June 26, up from just $8.50/mt on June 16, Platts data showed.

** High naphtha prices have prompted Asian steam crackers to use more LPG as feedstock. The LPG discount to naphtha widened to $40-$50/mt -- the typical switching point for steam crackers.