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CFR Japan naphtha price at multi-year highs, demand fueled by rising LPG


Platts LP Gaswire

CFR Japan naphtha price at multi-year highs, demand fueled by rising LPG

Asian naphtha was supported by bullish fundamentals Oct. 18 as the price of alternate feedstock LPG climbed, fueling demand for naphtha.

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However, concerns over steam cracker run rates weighed on the naphtha market as ethylene-naphtha margins narrowed.

The rise of LPG prices had made it economically unviable as an alternative cracker feedstock, keeping naphtha in demand. CFR North Asia propane has been on an uptrend and Platts had assessed it $17/mt higher on the day at $907/mt at the Oct. 18 Asian close. LPG typically becomes economically viable as a steam cracking feedstock when its price is 90% that of naphtha, or lower.

The uptrend seen in LPG prices have widened the physical spread between CFR North Asia propane and C+F Japan naphtha cargo $9.875/mt on the day to $115.375/mt at the Oct. 18 close, Platts data showed.

Propelled by the rise in western crude markers, benchmark C+F Japan naphtha peaked at a seven-year high at $791.125/mt Oct. 19, rising $17.75/mt on the week, Platts data showed. ICE Brent crude futures increased $1.63/b over the same period at $85.62/mt at the Oct. 18 Asian close. Benchmark C+F Japan naphtha was last assessed higher on Oct. 7, 2014 at $807.875/mt, Platts data showed.

The strength was reflected in the upswing of the physical naphtha crack spread to more than a five-year high at the Oct. 11 Asian close of trade. The CFR Japan naphtha physical crack against front month ICE Brent crude futures stood at $148.975/mt Oct. 18, up $5.525/mt on the week. The crack was last higher on July 29, 2014 at $150.35/mt, Platts data showed.

However, naphtha demand may be negatively impacted as ethylene-naphtha margins found itself on a downtrend for the fourth consecutive day, potentially driving down steam crackers' demand for naphtha. A slim ethylene-naphtha spread could result in a cut in steam crackers' operating run rate.

"Crackers are definitely looking to see if we should reduce run rates...[given] the high crude price and crack spreads", a Singapore-based end-user told Platts.

While the margin is still above the breakeven level of $300-$350 for non-integrated producers at $373.875/mt on Oct. 18, steam cracker operators are watching the margin closely as it inched towards breakeven levels.