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Asia naphtha crackers may cut run rates as spread to ethylene falls to 13-month low

Highlights

Ethylene-naphtha spread lowest since May 2020

Bullish butadiene unlikely to support cracker margins: sources

The key CFR Northeast Asia ethylene spread to benchmark C+F Japan naphtha cargo was assessed at $227.875/mt on June 18, down $32.625/mt mt day on day and below the typical breakeven of $250/mt for integrated producers, S&P Global Platts data showed.

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Asian naphtha-fed steam crackers would now likely consider reducing their operating rates as margins for key olefins fell to a negative territory, industry sources said on June 18.

This is the first time the ethylene-naphtha spread has fallen below $250/mt since May 11, 2020 when it was $204/mt, Platts data showed.

"For ethylene, at such prices, it is more economical to buy from the spot [market] rather than produce by ourselves, considering high crude and naphtha prices," said an Asia-based producer.

Asia ethylene-propylene falls to four-month low

The CFR Northeast Asia ethylene price fell $40/mt day on day to hit a four-month low of $860/mt on June 18, pressured by weak margins for ethylene oxide, monoethylene glycol and styrene sectors, Platts data showed.

The CFR China propylene price was stable day on day at a four-month low of $980/mt on June 18, Platts data showed.

The CFR China propylene-to-naphtha spread was calculated at $347.87/mt on June 18, up $7.37/mt a day before, after hitting the lowest level since February 2020, according to Platts data.

The ethylene and propylene markets have been under pressure amid apprehensions about too much supply after the startup of new steam crackers in South Korea, market sources said.

In South Korea, LG Chem started its new naphtha-fed steam cracker in Yeosu on June 11, Platts reported earlier. The steam cracker is able to produce 800,000 mt/year of ethylene and 400,000 mt/year of propylene. LG Chem aims to reach full operating rates by June 22, Platts reported earlier.

Another mixed-feed steam cracker owned by GS Caltex and Lotte Chemical, which started late in the week-ended June 18, is running at around 60% capacity, Platts reported earlier. The cracker, which is located in Yeosu, is able to produce 700,000 mt/year of ethylene and 500,000 mt/year of propylene.

Ample supply in naphtha market

While the new cracker startups had boosted overall demand for naphtha, the fall in olefin margins would lead some crackers reducing run rates, in turn capping demand for cracker-feed naphtha.

The Asian naphtha market was facing long supply and competitive pricing by sellers, and losses in crude may point to a decline in the benchmark C+F Japan naphtha cargo, sources said.

Benchmark C+F Japan naphtha cargo was last assessed at $632.62/mt on June 18, down $7.38/mt day on day, Platts data showed. Notably, this was a fall from the multi-year high of $645.62/mt reached on June 14, a level last higher on October 23, 2018 when it was $659.37/mt, Platts data showed.

Butadiene hits six-month high

Asian butadiene market was bullish, with CFR China butadiene price rising $90/mt day on day to be assessed at a six-month high of $1,290/mt on June 18, Platts data showed. Asian butadiene market was driven by strong demand in the US where the spot price has been hovering around $1,600-$1,700/mt CIF USG, industry sources said.

According to market sources, around 22,000 mt of butadiene is due to move from Asia to the US for June-July loading, which tightened supply in the Asian butadiene market.

China's butadiene inventory had been falling for a few weeks leading up to June 18, in line with aggressive exports from Asia. Industry sources estimated that China's butadiene inventory fell around 7,000 mt on the week to 29,000 mt in the week-ended June 18.

As a result, Asian butadiene-naphtha spread rose $97.37/mt on the day to $657.87/mt on June 18, the highest level since December 23, 2020, when the price was calculated at $659.37/mt, according to Platts data. The spread is also better than the typical breakeven spread of $300-$350/mt.

Market sources said the bullish butadiene margin is unlikely to stop steam crackers from reducing operating rates.

"The butadiene capacity is very small compared to ethylene or propylene. Positive butadiene margins would not be able to cover losses from ethylene and propylene," said an industry source.

A typical naphtha-fed steam cracker with ethylene capacity of 1 million mt/year has a propylene capacity of around 500,000 mt/year -- around half of the ethylene capacity -- while butadiene capacity is around 100,000-200,000 mt/year.