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Asia's reforming spread climbs to 3-month high as gasoline firms

The strength in Asia's gasoline market widened the Singapore reforming spread to a three-month high as gains in the gasoline complex outpaced that of naphtha.

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Gasoline strengthened against naphtha as the Singapore reforming spread -- the difference between the Singapore 92 RON gasoline and naphtha derivatives -- widened $1.09/b week on week to $9.31/b Oct. 14, S&P Global Platts data showed. This key reforming spread was last higher 14 weeks ago on July 8 at $9.65/b.

The spread grew as the FOB Singapore naphtha cargo assessment -- a netback from benchmark C+F Japan naphtha and a key value for gasoline blenders – peaked to a seven-year high at $84.93/b Oct. 14, rising $1.17/b day on day, while the Singapore-Japan MR tanker naphtha freight netback remained unchanged at $16.94/mt over the same period, Platts data showed.

The FOB Singapore naphtha cargo assessment was last higher at $87.26/b on Oct. 7, 2014.

The wider reforming spread would propel demand for naphtha as a gasoline blendstock, which has already been supported by positive olefin margins.

Gasoline supported by robust demand

Fundamentals in the Asian gasoline complex held firm, supported by an uptick in gasoline demand amid supply tightness.

The front-month November FOB Singapore 92 RON gasoline swap rose 1.76% day on day to $93.11/b at the close of Asian trade Oct. 14, Platts data showed.

Higher demand for gasoline was leading the recovery in Asia, with India's appetite for motor fuel expected to remain robust in the near term.

The end of the monsoon season also paved the way for higher gasoline demand, as India celebrates a string of festivals.

In Southeast Asia, the sentiment remained optimistic as Indonesia was seen on the spot market seeking gasoline while Malaysia resumed interstate travel Oct. 11.

Meanwhile on the supply side, export quotas in China have provided support to the Asian gasoline complex.

"Chinese gasoline exports are likely to remain at low levels and given that the Asian market is heavily reliant on China, we expect supply tightening to persist in Q4," a Singapore-based trader said.

Naphtha demand firms on positive olefin margins

Despite the widening spread, the Asian naphtha complex was buoyed by positive olefin margins. Demand for naphtha as a cracker feedstock was supported as steam cracker operators continued to see the key ethylene-naphtha margin above breakeven levels, which is likely to drive run rates to near full capacity, market sources said.

The key CFR Northeast Asia ethylene spread to C+F Japan naphtha cargo was above the typical breakeven level of $350/mt for non-integrated producers at $382.125/mt at the Oct. 14 Asian close, Platts data showed.

The strength in the market was seen as the CFR Japan naphtha physical crack against front-month ICE Brent crude futures increased $4.125/mt day on day and $16.525/mt week on week to $147.725/mt at the Oct. 14 Asian close.

Meanwhile, a recent upswing in crude pushed prices of CFR Japan naphtha to a seven-year high $777.875/mt at the Oct. 13 Asian close. Prices were last higher on Oct. 8, 2014, at $775.875/mt, Platts data showed.

Additionally, a rise in LPG prices further bolstered demand for naphtha as the main cracker feedstock, as the physical spread between CFR North Asia propane and C+F Japan naphtha cargo widened $7.50/mt day on day to $83.625/mt Oct. 14, Platts data showed.

LPG typically becomes economically viable as a steam cracking feedstock when its price is 90% that of naphtha, or lower. With LPG prices seeing an uptrend, steam crackers are likely to maximize the use of naphtha, market sources said.