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Asias naphtha market to come under pressure in the next three months

July 14/2011

(ICIS) -- Asias naphtha market is expected to come under pressure in the next three months, amid uncertainty in the global economy that threatens to dampen downstream petrochemical demand, traders said on Wednesday.

The market shows signs of turning bearish, despite a closed arbitrage window for flows from Europe. The naphtha crack spread was assessed at USD 91.85/tonne (EUR 65.20/tonne) on Tuesday, down sharply from a one-month high of USD 102.38/tonne on 7 July 2011, according to ICIS data. The inter-month spread remained in a contango of USD 1/tonne.

Ethylene margins plunged by USD 135/tonne week on week to USD 215/tonne on 8 July, according to the ICIS data, as a result of a hike in naphtha prices in tandem with global crude futures.

The margins have turned negative as the break-even costs for processing naphtha into ethylene are typically USD 250-300/tonne, traders said.

On a macro level, traders are worried about the state of the world economy and the resulting demand for petrochemicals, typically the yardstick for the health of the economy, traders said.

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