OUTLOOK ’20: Asia naphtha to tackle demand; supply poses challenge
Abstract
SINGAPORE (ICIS)--Asia naphtha markets are poised to draw support from growing petrochemical demand in 2020, while potentially lesser product flows from the Middle East could keep supply concerns on the boil.
SINGAPORE (ICIS)--Asia naphtha markets are
poised to draw support from growing
petrochemical demand in 2020, while potentially
lesser product flows from the Middle East could
keep supply concerns on the boil.
Asia naphtha prices have fluctuated over the fourth quarter of 2019, alongside volatile crude oil futures, which the product is closely related to.
Spot naphtha CFR (cost and freight) Japan prices went from $490/tonne in early-October to highs of $602/tonne at end-November, ICIS data shows.
Naphtha margins or crack spreads have climbed above $100/tonne in November, hitting a high of $123.58/tonne at end-November.
In contrast, naphtha’s crack spread was just at $32.18/tonne at end-November 2018.
“The naphtha market has been particularly weak in 2019, with a narrow crack spread for most of the year due to poorer demand, particularly in Asia," said Ajay Parmar, ICIS senior analyst.
"The market tightened somewhat in October, and prices are forecast to continue increasing for the rest of the year, in line with crude. However, with refineries expected to increase their run rates in 2020 to take advantage of anticipated wider gasoil cracks, narrow crack spreads for naphtha should prevail throughout the year, “ Parmer added.
On the supply front, market expectations of thinning cargo flows to Asia from the Middle East could keep the market buoyant.
November inflows to Asia were estimated at around 2.1m tonnes, down from industry estimates near 2.6m tonnes in October.
Attacks at oil facilities in Saudi Arabia in September catapulted Asia naphtha cargo premiums, keeping the market structure at its widest backwardation since 2013.
The market gained strength following moves earlier to plug any supply shortfalls from the region.
Anticipated firm demand in the petrochemical sector is set to provide support in 2020, absorbing naphtha.
According to ICIS Supply and Demand data, greater downstream ethylene capacities from the second-half of 2020 will encourage, if not boost naphtha demand.
That said, downstream olefins margins have been squeezed as producers grappled to keep up with rising costs of the petrochemical feedstock.
“I think a lot depends on crude oil and gasoline … refineries are seeing strong premiums when buying the crude, most probably [naphtha] will be strong for a while,” said a Singapore-based trader.
Moreover, the push to cleaner fuels - with the International Maritime Organization (IMO) 2020 new sulphur emission regulations to be rolled out in January - may well squeeze production of gasoline, and naphtha used for blending further up the chain of oil products.
Naphtha demand is expected to be supported with Malaysia’s Petronas Pengerang Refining and Petrochemical (PRefChem) complex in Johor, along with its 300,000 bbl/day refinery on track for commercial operations towards the end of 2019.
Swings in volatile crude oil markets could temper Asia naphtha going forward.
It remains to be seen whether moves by OPEC and its allies to reduce production in early 2020 would shake up prices.
The stage is set for exciting times ahead.
Thumbnail photo A port in Tokyo, Japan. (By Franck Robichon/EPA-EFE/Shutterstock)
Focus article by Melanie Wee
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Information comes from Internet sources
