Crackers waiting for LPG to hit $40/mt discount before switching
Steam crackers eye olefins production amid weak aromatics margins
Petrotahlil — Asian LPG prices have dipped to a discount to naphtha for the first time in 10 weeks, though petrochemical makers will wait for the discount to steepen further before switching to using propane and butane as alternate feedstock, trade sources said June 9.
The Argus Far East Index propane swap spread against the Mean of Platts Japan naphtha swap dipped to minus $11/mt at the close June 8 from a premium of $1/mt the previous session, S&P Global Platts data showed.
The spread was last in negative territory on March 26 at minus $10/mt after touching minus $11.25/mt on March 24, Platts data showed.
Weak naphtha prices in the past two months due to ample Western arbitrage cargoes coming to Asia, along with a surge in Indian and Indonesain LPG demand over March-April, had driven propane to a premium as high as $128.5/mt to naphtha on April 17, Platts data showed.
Asian steam crackers, keen to focus on olefins production as margins were poor for aromatics, have been closely eyeing the diminishing premium for LPG, which produces more olefins than naphtha feedstock, sources said.
"We need more discount to naphtha, typically [we start using more LPG when it is] below MOPJ by $40-$50/mt," a source with an Asian end-user said.
A major Asian petrochemical maker said that while its cracker continues to use LPG from term supply even when propane was at a premium, "we need MOPJ at minus $40-$50/mt to switch to [spot] LPG".
LPG typically becomes economically viable as a steam cracking feedstock when its price is 90% that of naphtha, or lower, sources said.
The spread between the key CFR Northeast Asia ethylene and CFR Japan naphtha physical assessments was $338.875/mt June 8, below the typical breakeven spread of $350/mt for non-integrated producers, but above the breakeven of $250/mt for integrated producers, Platts data showed.
The spread between CFR Taiwan/China paraxylene and physical CFR Japan naphtha was $167.545/mt on June 8, down $1.455/mt from the previous session, and has been under the breakeven level of around $300/mt for non-integrated producers since March 18, Platts data showed.
The physical spread between CFR North Asia propane and CFR Japan naphtha stood at minus $24/mt at the Asian close June 8, down $15.625/mt from the previous session, Platts data showed.
IMPROVING NAPHTHA MARKET
Asia's naphtha market has firmed in recent weeks on higher crude prices and tighter supply for the current H2 July delivery cycle.
Naphtha end-users face fewer domestically-produced cargoes due to refinery run cuts and fewer shipments from the Middle East, India and the West, sources said.
Naphtha remains firmly in demand as a steam cracker feedstock, as most Asian steam crackers are operating at full capacity in June due to favorable margins for olefins, market sources said.
The naphtha C+F Japan cargo benchmark was up $19.125/mt, or 5.43%, on the day at the Asian close on June 8, a three-month high. It was last higher on March 6 at $408.75/mt.
In comparison, it averaged $267.17/mt in May and $194.22/mt in April.
Highlighting the firm spot demand, cash differentials for spot paraffinic naphtha parcels were assessed at plus $10/mt at the close on June 8, up $5.50/mt week on week against benchmark Mean of Platts Japan naphtha physical on a CFR Japan basis. It was last at this level on March 4, Platts data showed.