Asia naphtha, ethylene softening on weak downstream demand

Prices of naphtha and ethylene in Asia are expected to be on a decline because of weak demand for downstream products - styrene monomer (SM) and polyethylene (PE), traders said on Friday.

A possible prolonged shutdown at a cracker in Taiwan further dampens the outlook for naphtha, they said.

The intermonth naphtha spread between the first-half July and first-half August contracts was assessed at a backwardation of $3.50/tonne (€2.50/tonne) - the weakest since 21 February, according to ICIS data. Naphtha prices were at $983.50-986.50/tonne CFR (cost and freight) Japan on Friday.

Reflecting the bearish market, South Korean’s Yeochun NCC (YNCC) has bought 50,000 tonnes of spot naphtha a very weak premium of $1.50/tonne to Japan quotes CFR for delivery into Yeosu in the first half of July.

 “Demand is decreasing and the outlook is bearish,” said a naphtha trader.

Meanwhile, Asian SM prices slipped below $1,400/tonne CFR China this week amid poor downstream styrenic resins demand. SM buyers were hesitant to commit as they expect spot prices to fall further.

High density PE (HDPE) spot prices have weakened by $10/tonne to below $1,350/tonne CFR China, on the back of sluggish downstream demand and softer leading domestic prices. Buyers opted to monitor the market this week, while waiting for more offers to emerge next week. However, they reiterated that purchases would be limited to small lots.

Ethylene prices slipped lower to $1,250-1,270/tonne CFR NE Asia on Friday, reflecting the latest deal in the spot market, with a Taiwanese buyer forking out $1,250/tonne CFR NE Asia for a 3,500-4,000 tonne lot for delivery in mid-June, players said. On 20 May, ethylene prices were at $1,320-1,350/tonne CFR NE Asia.

 “There is plenty of ethylene supply in the region, especially with crackers returning from maintenance,” said one trader.

Idemitsu Kosan is running its 374,000 tonne/year naphtha cracker in Chiba, Japan, at close to 100% following completion of a scheduled turnaround from 27 March to 18 May. Its 623,000 tonne/year naphtha cracker at Tokuyama is also running at close to full capacity.

Korea Petrochemical Industry Co (KPIC) has restarted its 470,000 tonne/year cracker at Onsan on 23 May and is currently running the unit at full tilt. The company also resumed production at its downstream high-density polyethylene (HDPE) facility, and operating rates at all lines are currently at 80% or higher.

The KPIC cracker was shut on 18 May because of technical problems, curtailing the supply of ethylene to the HDPE plant.

 “Now that Shell is back on track, spot ethylene demand will weaken further,” another trader said.

Shell is currently running its 800,000 tonne/year cracker at Bukom Island in Singapore at 60-70% of capacity, after achieving on-spec production on 19 May.

A Shell spokesperson said that the process of restarting the cracker began in the middle of May. The company will monitor the performance of the cracker to determine whether the force majeure on ethylene and mono-ethylene glycol shipments can be lifted. Technical problems shut the cracker on 18 March and had remained down for nearly two months.

Spot naphtha demand was on a decline, as Taiwan's Formosa Petrochemical Corp (FPCC) has yet to set a date for the restart of its 700,000 tonne/year No 1 cracker in Mailiao that was shut on 12 May.

Market sources had said earlier that the cracker's shutdown would likely last a month.

A fire broke out at the Formosa group’s Mailiao petrochemical complex late on 12 May, causing a power outage that shut the No 1 cracker, along with several other downstream plants.

Some of the affected plants, including FPCC's 260,000 tonne/year acrylonitrile (ACN) plant and Formosa Plastics Corp's (FPC) 500,000 tonne/year polyvinyl chloride (PVC) unit, have since been restarted.

Meanwhile, Formosa has plans to shut its 1.2m tonne/year No 3 cracker in Mailiao in September for a turnaround that will last 40-45 days. The No 3 cracker and the 1.03m tonne/year No 2 cracker are operating at 95-100%.

A slate of naphtha tenders recorded lower premiums because of weak regional demand for the petrochemical feedstock.

Indian refiner Oil and Natural Gas Corp (ONGC) sold by tender 35,000 tonnes of naphtha for loading from Mumbai on 10-11 June to Total, at a premium of $19/tonne to Middle East quotes FOB.

ONGC also sold via a separate tender 35,000 tonnes of naphtha to Itochu at a premium of $20/tonne to Middle East quotes FOB for loading from Hazira on 3-4 June. In its previous tender, ONGC sold 35,000 tonnes of naphtha to Itochu at a premium of $39.50/tonne to Middle East quotes FOB for loading from the same port on 19-20 May.

 “It’s very difficult to find buyers these days and this trend is expected to last for the next two to three months,” said a petrochemical player.