Naphtha premiums remain high amid demand loss from cracker cuts
Asia will lose more than 300,000 tons of naphtha demand this month as petrochemical makers cut output to combat weak margins, but refinery maintenance is reducing supply of the plastics and chemicals building block, holding premiums steady.
Run cuts at crackers - units that break down naphtha into components to make plastics and chemicals - have historically pulled spot prices for the feedstock into discounts to benchmark prices in Japan. The last time petrochemical makers took such a step was during the 2008 financial crisis.
But a number of refineries are now in turnaround in the Middle East, Asia’s top naphtha supplier, underpinning prices for the product.
“The several refinery turnarounds in Saudi Arabia and (United Arab Emirates) will lower (Middle Eastern) exports and offset some of the demand reduction due to cuts in crackers runs,” said Matthew Chew, principal oil analyst at IHS Markit.
Saudi Aramco Total Refining and Petrochemical Company (SATORP), for example, has said it will conduct scheduled maintenance on Train 2 units from Jan. 13 to Feb. 29.
Abu Dhabi National Oil Company (Adnoc) as well said in a statement last month that its Ruwais facility would undergo routine maintenance in early 2020.
Naphtha traders have said at least two more facilities in Saudi Arabia, Rabigh and Ras Tanura, are also scheduled to undergo maintenance in the first quarter. This could not be confirmed with Saudi Aramco, which has declined to comment.
The effect of these turnarounds is reflected in data from Refinitiv Oil Research showing that Middle East naphtha slated to arrive in North Asia and Singapore in February is about 1.8 million tons so far, sharply lower from January’s scheduled volumes of almost 2.3 million tons.
That has helped to hold naphtha spot premiums relatively high, with benchmark open-specification grade sold to Yeosu, South Korea, last week at about $18.50 a tonne to Japan quotes on a cost-and-freight (C&F) basis.
Although this was down nearly 40% from multi-year highs of $30 a tonne in October, it was more than 18 times higher versus the same period in 2019.
“People often say the naphtha market is weak. But South Korea paid an $18.50-a-tonne premium ... how is that weak?” said an industry source who tracks deals.
Naphtha crackers across Asia, including in South Korea, Japan, Indonesia, Singapore and Malaysia, have cut runs by 5%-10%. The Philippines has decided to extend the shutdown of its sole cracker following planned maintenance.
This translates to a net demand loss of 300,000 to 350,000 tons for January, said Sri Paravaikkarasu, director for Asia oil at consulting firm FGE.
Chew of IHS estimated the demand loss this month at 100,000 to 200,000 barrels per day (bpd) (approximately 11,100 tons to 22,200 tons per day). (Reporting by Seng Li Peng; Editing by Tom Hogue)
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