Asia's naphtha crack fell from a near three-week high to a three-session low of $59.60 a tonne as more liquefied petroleum gas (LPG) could soon replace it, traders said. Asian petrochemical makers can replace between 5 and 15 percent of their naphtha feedstock with LPG. But as a general rule, Asian petrochemical makers would only do the partial switch if LPG prices are at least $50 a tonne lower than naphtha.
"Going forward, naphtha demand is expected to be bad. There's a scheduled maintenance at Formosa's cracker and there will be more LPG replacing naphtha," said an industry source based in Singapore. Formosa, Asia's top naphtha importer, will shut a 1.03 million tonnes per year cracker from August to September for maintenance. The shutdown period would result in a demand loss of more than 200,000 tonnes of naphtha.
Formosa has already cut its naphtha spot purchases to only 60,000 tonnes for first-half June delivery versus between 100,000 and 150,000 tonnes bought for first-half May delivery as it raises the portion of LPG usage at the expense of naphtha. South Korea's Lotte Chemical was hit by an outage which prompted it to reduce its overall cracking capacity at one of its two 1-million tonnes per year (tpy) crackers, traders said.
This however could not be confirmed but traders said the impact should be small as the unit is partially running and is normal operations are expected to be restored in about two weeks. South Korea's YNCC has bought a naphtha cargo for second-half June delivery at a discount of about $5 a tonne to Japan quotes on a cost-and-freight basis on Tuesday. It did not purchase any for first-half July delivery even though its tender had originally sought cargoes for second-half June and first-half July, traders said. This, however, could not be directly confirmed as buyers rarely comment on their deals.