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Asian condensates supported by higher naphtha margins, downside risks persist

Highlights

Nov loading condensates see higher price differentials

Asia facing tight supply of cracker-feed naphtha

Singapore — Price differentials for November loading Asian condensate cargoes traded higher month on month in September supported by improving Naphtha margins, although downside risks persist from lower downstream demand, trade sources told S&P Global Platts in the week beginning Sept. 21.

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Australia's North West Shelf condensate traded at premiums of around high $1s/b to low $2s/b to Platts Dated Brent on a FOB basis, in comparison to October loading cargoes that traded at discounts of around $6/b to Platts Dated Brent in August, traders said.

Similarly, Qatar Petroleum sold a couple of November loading low sulfur condensate at a discount of around $2.5/b to Platts Dubai on an FOB basis, in comparison to a discount of $3.8/b in August, traders said.

"Condensates are supported by higher naphtha margins," said a Singapore-based condensate trader.

The second-month naphtha crack -- the main by-product of condensates -- against Dubai swap rose to a near three-year high of 88 cents/b on Sept. 14, data from S&P Global Platts showed. The crack swap has been averaging in positive territory, with an average of 3 cents/b so far in September, the data showed.

The Asian naphtha complex has seen tight supply of cracker-feed naphtha, with steam crackers struggling to secure their preferred high paraffin content grades as feedstock at a time when their run rates were at maximum or close to full capacity on the back of positive olefin margins, sources said.

Currently, Asian steam crackers are keen to use naphtha with paraffin content in the high 70s% or around 80% which was thinly available, as excess supply of heavy full range naphtha has been blended into the cracker feed naphtha pool, leading to more supply of 70% or lower paraffin content naphtha, sources said.

There has been fewer imports of high paraffin naphtha from the Middle East or Europe, and regional refinery run cuts also capped domestic supply, sources said.

Reflecting the firm market sentiment, the CFR Japan naphtha physical crack spread against front month ICE Brent crude futures has increased, with the month-to-date average at $80.65/mt, higher than the August average of $63.10/mt, Platts data showed. Also, the physical crack had climbed to a year-to-date high of $85.95/mt at the Sept. 18 Asian close, and remains close to that level as it was last assessed at $85.075/mt at the Sept. 24 Asian close.

DOWNSIDE RISKS REMAIN

Although naphtha margins have helped to keep condensate price differentials supported, downside risks continue to remain as demand from downstream petrochemical industry remains weak, traders said.

"PX [paraxylene] margins are not great ... there is no plan to increase splitter runs as well," said a South Korean end-user.

"These higher prices are not sustainable -- no fundamental demand support," said the condensate trader.

Low splitter run rates has led to ample supply of heavy full range naphtha regionally. Heavy full range naphtha was heard traded at a discount of around $10/mt to open-specification naphtha, sources said.

In the week starting Sept. 20, South Korea's GS Caltex and Hanwha Total were heard to have bought heavy full-range naphtha for H1 November delivery at a discount of $4-$5/mt to Mean of Platts Japan naphtha assessments, CFR.

Comparatively, cash differentials for spot paraffinic naphtha parcels have been assessed at $4.50-$5.50/mt over Sept. 21-24, against benchmark Mean of Platts Japan naphtha physical, on a CFR Korea basis, Platts data showed.