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Asia naphtha market under pressure as crackers eye cheaper alternative LPG

July 22/2020

MOSCOW (MRC) -- Crackers in Asia are expected to switch to cheaper alternative feedstock LPG to meet shortfalls of naphtha whose supplies from the west is set to drop to a four-month low in August, four sources who track the shipments said, said Hydrocarbonprocessing.

Cumulative east-bound naphtha cargoes from Europe, the Mediterranean and the United States will fall at least 40% in August to 1.6 million-1.7 million tons from Mays record high due to run cuts in Europe, they said. That is about 7-9% lower versus July, they said.  Buyers, most of whom are operating their crackers at full-tilt, are expected to turn to LPG, whose prices have recently started weakening. That could exert further pressure on naphtha spot prices and margins, which hit a one-month low of USD62.23 on Friday.

Petrochemical makers who operate naphtha crackers typically can replace 5% to 15% of their key feedstock with LPG. While most have term supplies of LPG, they would buy some spot cargoes but only when the prices are trading at a discount of at least USD50 a tonne to naphtha.

Strong demand for LPG, a mixture of propane and butane, had kept its spot prices high until June. But based on data from Argus Media, the Argus Far East Index (AFEI) for prompt butane on a CFR basis for the week ended June 7 flipped to a discount for the first time since March against Reuters naphtha price assessment NAF-1H-TYO, with the discount widening to at least $80 a tonne from second-half of June.

"We expect LPG demand for cracking to increase in July/August as light olefins prices continue to strengthen while LPGs price discount continues to steepen against naphtha," said Aaron Cheong of Energy Aspects. Light olefins, the building blocks for plastics, are obtained through cracking of naphtha or LPG.

As cracking LPG feedstock produces around 10% more light olefins per tonne of feedstock compared to naphtha, there is a strong incentive for cracker operators to produce more light olefins via lighter feedstocks to maximise profits, Cheong added.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 595,170 tonnes in the first five month of 2020, up by 10% year on year. Deliveries of all ethylene polymers, except for linear low density polyethylene (LLDPE), rose partially because of an increase in capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.
Author:Anna Larionova
Tags:petroleum products, crude oil, PP, PE, ethylene, propylene, LPG, petrochemistry.
Category:General News
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