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Naphtha in demand despite crunch in propane prices

Singapore — Asia's growing appetite for arbitraged naphtha will continue to be satisfied by Europe and the US in the near term, despite the strong pull for the feedstock by Europe's petrochemical markets, which has consistently reduced the volume of naphtha heading East in the last few months, according to data from market sources and cFlow, Platts trade-flow software.

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Fixtures of January-loading naphtha arbitraged from Europe to Asia totaled 1.41 million mt, of which 235,000 mt was originally for loading in December, the data showed. As a result, December-loading naphtha totaled 1.455 million mt, lower than the 1.632 million mt in November.

In line with lower arbitrage volumes from Europe, January naphtha loadings from Tuapse was 240,000 mt, down 20% on the month, the latest loading program showed.

HIGH UTILIZATION RATES BY CRACKERS IN EUROPE, ASIA

Asia's naphtha-fed steam crackers are due to come online with fresh capacity in 2021, the latest being YNCC's No.2 cracker that restarted with an expanded capacity of 915,000 mt/year of ethylene this week.

Incremental demand for lighter naphtha grades, suitable as cracker feedstock, would amount to 125,000-150,000 mt/month, which is expected to be supplied from the US. Around 800,000 mt of US Gulf Coast naphtha is due to arrive in the Far East over February, and together with the January-loading European volumes, would tip the total to over 2 million mt, easily satisfying Asia's expanded demand for cracker feedstock naphtha.

As arbitrage inflows begin to offset the fresh demand from crackers coming online over H2 January, the backwardation in the Asian naphtha market has begun to flatten. Platts had assessed front-month February-March Mean of Platts Japan naphtha swaps spread at $5.50/mt at the Jan. 20 Asian close, down 75 cents day on day.

Yet, olefin margins remain well within positive territory for petrochemical producers -- the key CFR Northeast Asia ethylene spread to C+F Japan naphtha remains above the typical breakeven spread for non-integrated producers of $350/mt, as it was assessed at $444.625/mt on Jan. 20, down $30.50/mt day on day, Platts data showed.

Borealis' cracker in Stenungsund, Sweden, restarting operations on Jan. 12, and Ineos Dormagen, Germany, restarting on Jan. 9, along with Europe's other crackers running at almost full capacity, could ease the tightness in the continent's downstream petrochemicals markets. However, this would result in more naphtha being absorbed domestically, leaving much less for the Far East.

OVERVALUED PROPANE PRESSURES NAPHTHA

The common indicator of arbitrage economics -- the front month East-West spread -- was relatively stable over January, and was last assessed at $15.50/mt at the European close on Jan. 20, Platts data showed. This coupled with strong positive basis European cash differentials indicated healthy interest for exports to Far East markets, sources said.

However, an overbought propane in anticipation of cold temperatures, particularly in Asia, triggered a steep price correction cascading into the European and Asian naphtha markets as traders unwound long positions. The premium of CFR Japan naphtha cargo swap over the CIF NWE equivalent closed at $15.50/mt on Jan. 20, down 11.15% on the month, and the lowest since Nov. 30, 2020, Platts data showed.

High US LPG volumes were drawn to Asia, which had reduced output, shutting the US-Europe arbitrage window and inflating the propane to naphtha differentials to multi-month highs. The market, however, had possibly overshot fair value and corrected itself with a $53.25/mt decline in the past two days. February CIF NWE propane swap contract against the equivalent naphtha closed at minus $17.75/mt on Jan. 20, while February CIF NWE naphtha crack spread collapsed 70 cents/b to close at minus 15 cents/b, Platts data showed.

"Propane now is a typical market where everyone and even their grandmother was long," a Europe-based source said.

Despite the price shock, Europe's feedstock demand remains robust and naphtha is not expected to exit the cracking pool in the near term. Petrochemical producers' margins remain strong as a lack of blending demand capped naphtha prices. Ethylene and propylene remain at 5% and 10% premiums, respectively, to the industry's monthly settled contract prices.

Propane volumes will likely be absorbed, balancing out propane to naphtha differentials, as temperatures in Asia's main feedstocks outlets -- Japan, China, and South Korea -- are forecast between minus 7 degree Celsius and 15 C by end-January.

Europe to Asia naphtha arbitrage fixtures:

Vessel
Quantity ('000 kt)
Cargo
Laycan
Voyage
Freight
Charterer
BW Larissa
80
NA
Jan29
Sikkda-Japan
Own Prog
Trafigura
STI Prestige
60
NA
Jan26
S Spain-Japan
$1.85m
Cepsa
Flagship Violet
60
NA
Jan26
Tuapse-Japan
$1.8m
Trafigura
Tavistock Square
80
NA
Jan24
Mongstad-Japan
$2.675m
Equinor
STI Lombard
90
NA
Jan24
Eleusis-Japan
$2.3m
ATS
BW Seine
60
NA
Jan22
Cartagena-Japan
$1.85m
Repsol
Flagship Tulip
60
NA
Jan20
S Spain-Japan
$1.75m
Cepsa
Elka Vassiliki
80
NA
Jan20
Skikda-Japan
$2m
ST Shipping
Torm Ismini
60
NA
Jan20
Tuapse-Japan
$1.75m
Trafigura
Hafnia Shanghai
60
NA
Jan18
Cartagena-Brazil, Japan
w105, $1.7m
Repsol
BW Kronborg
60
NA
Jan15
Tuapse-Japan
$1.85m
Socar
Seaways Shenandoah
80
NA
Jan12
Ust Luga-Japan
$2.55m
Novatek
Captain Spiro
85
NA
Jan 10
Mediterranean-Japan
$1.95m
Trafigura
STI Winnie
80
NA
Jan10
Ust Luga-Japan
$2.45m
Novatek
Minerva Joy
35
NA
Jan8
STS Suez-Japan
w90
Vitol
Brook Trout
60
NA
Jan7
Black Sea-Japan
rnr
MME
Nordic Tristan
60
NA
Jan5
Tuapse-Japan
$1.625m
Trafigura
STI Park
85
NA
Jan2
Eleusis-Japan
$2m
ATS
Burri
85
NA
Jan1
Novorossiysk-Japan
$1.8m
Litasco
STI Sanctity
90
NA
Jan1
Ust Luga-Japan
$2.075m
Novatek
Kmarin Regard
85
NA
Dec28
Skikda-Kaohsiung
$1.925m
ATS
Torm Elise
60
NA
Dec27
Tuapse-Ulsan
$1.65m
ST Shipping
Jal Sasvata
35
NA
Dec26
STS Suez-Japan
Japan
w115
Alpine Confidence
80
NA
Dec25
Skikda-Japan
Japan
Own Prog
STI Gallantry
90
NA
Dec23
Mongstad-Japan
Japan
$2.175m
Front Capella
85
NA
Dec21
Milazzo-East
East
$1.7m
Spottail
60
NA
Dec21
Tuapse-East
$1.65m
ST Shipping
Nissos Hereclea
90
NA
Dec20
Kavkaz-Japan
$1.825m
BGN
Pink Star
90
NA
Dec18
Skikda-Japan
Own Prog
BP
STI Alexis
85
NA
Dec17
Novorossiysk-Japan
$1.975m
Trafigura
LR2 Pioneer
75
NA
Dec14
Nyhamna-Jebel Ali
$1.3m
Equinor
Lorelei
60
NA
Dec13
Tuapse-Japan
$1.6m
Socar
Champion Pleasure
85
NA
Dec12
Skikda-Japan
Own Prog
BP
Ust Luga
80
NA
Dec10
Ust Luga-East
rnr
cnr
Pelican Pacific
35
NA
Dec9
STS Suez-Mailiao
w97.5
BGN
SKS Donggang
80
NA
Dec9
Skikda-Mailiao
$1.775m
Total
Front Lion
80
NA
Dec7
Agio-Huizhou
$1.75m
Trafigura
STI Saville Row
80
NA
Dec2
Eleusis-Daesan
$1.75m
Clearlake
La Boheme
60
NA
Dec1
Tuapse-Daesan
$1.55m
Socar
Torm Elizabeth
60
NA
Dec1
Tuapse-Incheon
$1.525m
MME

Data from: Market sources, S&P Global Platts cFlow