June 30 (Bloomberg) -- Asian plastics makers may pay more for the chemical raw material naphtha in the third quarter because Middle East producers are boosting shipments to the U.S., where rising gas prices have increased demand for alternative fuels.

U.S. natural gas prices have surged 67 percent in the past year, prompting companies to switch to cheaper fuels such as naphtha to make chemicals and plastics, according to a Bloomberg survey of six traders, chemical makers and refiners. Rising U.S. demand for naphtha is forcing Asian buyers to compete for cargoes.

``The U.S. always played this role in the naphtha market as sort of the garbage can. When nobody else can absorb the cargoes, the U.S. can,'' said James Weinrauch, an analyst at Poten & Partners in Singapore. Now, ``it's not playing the role of absorber but drawing cargoes, paying up and becoming a competitor.''

With the hottest part of the North American summer approaching and demand rising for power to run air conditioners, the rally in natural gas prices probably isn't over, traders said. That may boost U.S. naphtha demand, raising prices of the fuel in Asia.

``Naphtha is still holding up,'' said Akira Kamiyama, an oil and fuels trader at Mitsui & Co. in Tokyo. ``The petrochemical companies may change to using more naphtha, which would have a big effect on prices.'' Naphtha, which is distilled from crude oil, is used as a feedstock to make petrochemicals.

Naphtha swap prices in Singapore, up 13 percent in the past two months, may rise further as U.S. buyers compete for cargoes, traders said. Naphtha for July delivery in Singapore, Asia's biggest oil-trading center, has risen 5.9 percent in the past month, closing at $26.90 a barrel Friday, according to Bloomberg data. Prices fell 1.6 percent during the same period last year.

Crude Oil

``Naphtha prices have been slightly higher this year,'' said Eric Han, a spokesman at LG Chem Ltd., parent of LG Petrochemical Co. ``Another element that has influenced naphtha prices is the supply from the oil sector,'' he said.

The Organization of Petroleum Exporting Countries, which pumps about a third of the world's oil, in April agreed to lower oil production to a new quota of 25.4 million barrels a day as of June 1. OPEC sets output quotas to keep an oil index between $22 and $28 a barrel. The so-called basket price was quoted at $26.62 a barrel on Thursday.

U.S. oil refiners may also use more naphtha as they boost gasoline production in the third quarter to meet demand from motorists, who typically take to the roads during the summer holidays, traders said.

U.S. gasoline supplies stood at 208.2 million barrels in the week ended June 20, 3.8 percent lower than last year, Energy Department data showed. U.S. refiners are running close to full capacity to keep the market supplied with gasoline.

``There's a fuel competition for naphtha, either for petrochemicals or gasoline,'' said Ong Eng Tong, an independent fuel consultant in Singapore. ``The Middle East naphtha cargoes are being moved to the U.S.,'' reducing stockpiles in Asia.

Stockpiles

Singapore's stocks of light distillates, which include naphtha and gasoline, have fallen 12 percent in the past year. Supplies stood at about 6.9 million barrels in the week ended June 25, according to data from International Enterprise Singapore, a unit of the trade ministry.

Supplies in Asia may fall further in the coming months if U.S. gasoline inventories decline, boosting demand for naphtha from Middle East producers.

``The Asia-Pacific is balanced in naphtha,'' Ong said. ``If U.S. gasoline inventories show a draw down, naphtha will flow in that direction,'' boosting prices for Asian buyers, he said.

Last Updated: June 29, 2003 21:23 EDT