Singapore — The diverging price spread between LPG and naphtha in recent weeks has incentivized South Korean petrochemical producers to partially switch feedstock from naphtha to LPG from July, market participants said.
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South Korean naphtha buyers Hanwha Total, LG Chem, Lotte Chem and YNCC have all purchased LPG to take advantage of the cheaper feedstock, company sources have confirmed in recent days.
"Most of the South Korean crackers have bought LPG," a South Korean naphtha end-user said.
The Far East Index propane swap spread against the Mean of Platts Japan naphtha swap widened $18.25/mt day on day to minus $51.75/mt at the June 30 Asian close, according to S&P Global Platts data. The spread was last deeper in discount 17 weeks ago on March 3, at minus $62/mt, Platts data showed.
LPG typically becomes economically viable as a steam cracker feedstock when its price is 90% that of naphtha, or lower. Steam crackers typically begin utilizing more LPG when it is $40-$50/mt cheaper than naphtha, sources said.
The physical spread between CFR North Asia propane and CFR Japan naphtha averaged 91.11% in June, while the spread between CFR North Asia butane and CFR Japan naphtha averaged 86.8%.
With LPG commanding a sizable discount to naphtha in June, South Korean steam crackers emerged to purchase July and August delivery LPG to lower dependence on the use of naphtha.
Naphtha supply has been tight for July and August delivery cycles, firming prices as few cargoes were available due to refinery run cuts and limited Western arbitrage shipments, market sources said.
Benchark naphtha CFR Japan rose from $319.625/mt on June 1 to peak at $396.25/mt June 23 before being last assessed at $379.25/mt June 30, Platts data showed.
South Korea's Yeochun NCC has bought two spot cargoes of butane for delivery over July and August, sources said.
Lotte Chemical has lowered its naphtha requirements for August and purchased additional spot LPG recently for its steam cracker in Yeosu, confirmed a source aware of the matter. The company's Yeosu facility is able to produce 1.18 million mt/year of ethylene and 550,000 mt/year of propylene.
LG Chem has plans to utilize more LPG for its steam crackers in July, at around 15,000 mt more than in June, confirmed a source aware of the matter. The company's Daesan and Yeosu steam crackers have ethylene production capacities of 1.27 million mt/year and 1.18 million mt/year, respectively.
Hanwha Total Petrochemical recently purchased an evenly-mixed cargo via spot tender for delivery over the second half of July. Hanwha Total has a propane cracker with an ethylene production capacity of 310,000 mt/year.
Petrochemical makers in South Korea and Taiwan are typically the first to capitalize on cheaper LPG as feedstock for cost advantage; however not all steam crackers can switch easily to using more LPG and some may require a steeper discount to make it viable, sources said.