Petrotahlil - Prompt naphtha prices have fallen against forward-month values in Asia-Pacific, dragged down by weaker margins for ethylene and competitive prices of rival cracker feedstock LPG.
The prompt physical half-month naphtha price traded at an $11/t premium to forward prices yesterday, its fourth consecutive daily decline after the backwardation reached a five-month high of $20.50/t on 7 July. The softening market has also been reflected in weaker naphtha margins, which were at a five-month high of $78.303/t on 9 July but fell to $64.385/t on 14 July, a one-month low.
The naphtha market remains relatively tight because of factors such as lower refinery runs, firmer petrochemical margins and a recovery in driving activity. But continued gains in naphtha and declines in petrochemical prices would force Asian crackers to consider loading down, so a correction is needed, said traders.
Strong ethylene margins had been one of the bullish factors driving naphtha prices. But ethylene prices in northeast Asia have now fallen for two consecutive weeks amid a stand-off between buyers and sellers. The prospect of additional ethylene production in July as units restart in Japan added to bearish pressure.
Lower LPG prices have also given Asian crackers the flexibility to shift some demand away from naphtha in favour of propane and butane as cracker feedstock. The butane-naphtha spread has weakened, with butane at an average $99/t discount to naphtha in the first half of July, compared to a $56/t discount in June and a $21.59/t premium in June.
Refinery run rates in China and Japan have also been edging higher as domestic transportation fuel demand starts to increase, adding to supplies.
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Source : Argus