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Red Sea, Russian refinery attacks tighten Asia naphtha supplies

(Reuters) - Prices of naphtha, a key petrochemical feedstock, have jumped in Asia as drone attacks on Russian refineries and the Red Sea shipping crisis have disrupted European shipments, trade sources and analysts said.

The Asian spot naphtha price rose to $701 per metric ton on Friday after hitting a 10-month high of $747 in late January, well above last June's low around $500, as traders grapple with fallout from the dual conflicts.

Damage in recent weeks to Russian refineries and a key export terminal at Ust-Luga, as well as attacks on Red Sea shipping that have led a growing number of vessels to divert around Africa, follows last year's rejig of global energy shipping in the wake of Western sanctions on Russia.

That is driving up costs for Asian importers such as South Korean petrochemical producers, which were already running plants at lower rates to cope with weak margins caused by oversupply and slower plastics demand growth, trade sources said, a squeeze expected to last through March.

"There will be a lot of prompt tightness if outage at the Russian plants is prolonged, it adds fuel to the (Red Sea) freight diversions, with already longer voyages," said Armaan Ashraf, global head of natural gas liquids at consultancy FGE.

Russia exports about 400,000 barrels per day (bpd) of naphtha, said Kpler analyst Viktor Katona, with significant volumes from Ust-Luga destined for China, Singapore and Taiwan.

"Should Ust-Luga repairs take longer than expected, a third of those flows might not be available in the immediate future," Katona said.

Russia's Tuapse refinery, meanwhile, could be offline for all of February, depriving the market of 40,000-50,000 bpd of naphtha, FGE analysts wrote on Feb. 5.

Asia, a net importer of naphtha, relies on western suppliers including Russia for about 2 million tons monthly, equivalent to 600,000 barrels per day.

The Middle East is Asia's top naphtha supplier.


About 650,000 tons of Asia-bound naphtha from the West, or 40% of supply headed to the region, has been diverted from the Red Sea around the Cape of Good Hope as of late January, adding 15-20 days to the voyage, LSEG data showed.

At least two such diverted cargoes will reach Asia by the end of March, easing temporary supply tightness, an official at an Asia-based naphtha importer said, declining to be named as he is not authorised to speak to the media.

Meanwhile, two refiners that went into maintenance early this year, Saudi Aramco's Ras Tanura and QatarEnergy's Ras Laffan, are likely to start exporting naphtha in late March, further improving supply to Asia, traders said.

Also, Kuwait's Al Zour has ramped up production and its February naphtha exports to Asia are likely to increase to about 640,000 tons from 441,000 tons in February 2023, LSEG data showed.

At $17 per ton, Russian naphtha was around $5 per ton cheaper than Middle Eastern naphtha as of the first week of February, a Singapore-based trader said, a discount that means many Asian buyers prefer Russian supply.

The gap, once as wide as $50, has narrowed sharply after Red Sea war risk premiums drove up freight costs, traders said.

Another Singapore trader said that the market has pinned hope on quick revival of Russian export terminals to ease "temporary tightness" in naphtha supplies.

U.S. naphtha supplies could also ease the crunch, analysts said, with over 250,000 tons from the U.S. Gulf and Peru expected to reach Asia in February, compared with 132,000 tons last February, LSEG data showed.

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