Singapore — The Asian naphtha and gasoline markets are set to be under downward pressure this week, with the petrochemical feedstock suffering from negative production margins, while the transport fuel enters the low demand season amid a heavy inflow of cargoes to Singapore.
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On LPG, a flurry of US cargoes to Asia has plugged the shortfall in the region, keeping the market well-supplied and driving down CFR North Asia prices.
NAPHTHA PRESSURED BY STEAM CRACKER RUN CUTS
A series of steam cracker run cuts in Asia since January due to negative margins is set to place downward pressure on naphtha demand this week after buying activity for H2 February is almost complete, market sources said.
The CFR Japan physical naphtha premium against benchmark Mean of Platts Japan naphtha shrank by 19.57% since January 6 to a three-month low of plus $18.50/mt Friday. The cash premium was last lower on October 3 when it was $18/mt, S&P Global Platts data showed.
Yet, market participants said CFR North Asia cash premiums were expected to remain close to the current level as only a few cargoes were available after the flurry of buying in the previous week.
"Now after all the [buy] tenders, I feel that there are not many cargoes leftover for the rest of H2 February, but February supply is balanced because of rolled over arbitrage cargoes from January," a North Asian end-user said.
Nonetheless, traders remained concerned about developments in the Middle East, a key source of naphtha for the region. Sources said no supply disruption was seen, however, additional war risk premiums could rise.
"Freight has been coming off, but the insurance is coming up, so the voyage fees are extremely expensive," the North Asian end-user source said. The benchmark LR1 Persian Gulf-Japan freight rate was last assessed at w145, down w13 since the start of the year, Platts data showed.
HEAVY GASOLINE EXPORTS TO SINGAPORE
A heavy inflow of gasoline barrels from North Asia to Singapore is expected to keep gasoline depressed this week, even as risk-taking sentiment recovers from last week's heightened geopolitical tensions, sources said.
Market participants are expecting more cargoes to emerge from Japan and South Korea as lackluster domestic demand during winter has led to higher exports from both countries.
At least five MR and 1 LR tanker carrying gasoline were noted to have been placed on subjects for voyages to Singapore, with loading dates specified for mid-January, according to shipping sources, adding on to the five LR1s and two LR2s that were placed on subjects for early January.
This brings total gasoline loadings in H1 January destined for Singapore to 655,000 mt. This compares to 352,016 mt of imports into the city-state over the first two weeks of December, data from Enterprise Singapore showed.
Adding to the bearishness, regional demand has waned, as flooding in Indonesia has curbed import demand from state-owned Pertamina -- the region's largest buyer of gasoline.
"Everyone expected Indonesia to buy more in January and February, but that seems to not be the case," one market source said.
Reflecting the weaker fundamentals, the FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures averaged $4.68/b over January 6-10, down from $5.28/b a week earlier, Platts data showed.
US LPG DRIVE DOWN ASIA PRICES
The Asian LPG market will continue to eye offers of Western cargoes to keep the market well-supplied, while buying interest remained healthy.
Some trade sources estimate that cargoes arriving to Asia from the West -- including the US, Canada, West Africa and Mediterranean -- are around
2.6 million mt in January and expected to rise to 2.8 million mt in February, but others said the volumes each month could be limited to 2.2 million-2.3 million mt.
The offers seen had helped to push CFR North Asia prices to one-month lows, down more sharply than crude futures and shrugging off concerns over US-Iran tensions.
So far, acceptances of February-loading term nominations have shown Qatar Petroleum delaying loadings by four to five days and Abu Dhabi National Oil Company by seven to eight days, though no cuts were heard, traders said. Saudi Aramco's announcement is expected by the end of this week.
Sentiment on the FOB market remained bullish due to loading uncertainties compared with the well-supplied CFR market, keeping FEI propane swaps below CP swaps. The CP swaps February/March backwardation remained wide around $55/mt, reflecting prompt tightness amid loading delays.
The recent slide in physical LPG also sharpened the discount between FEI propane swaps to the Mean of Platts Japan naphtha assessment beyond the $50/mt threshold, and traders are awaiting if
petrochemical makers such as Taiwan's Formosa will re-emerge to buy LPG feedstock, after a near two–month lapse.