June 4 (Bloomberg) -- Naphtha exports to Asia may drop 40 percent this month as refiners boost supply and prices in Singapore discourage shipments from Europe.
Cargoes of at least 210,000 metric tons have been booked to Asia for loading in early June, and total exports for the month may reach 300,000 tons, according to a survey of four Europe-based traders. This compares with an estimated 500,000 tons in May. Asian naphtha for delivery in the second half of July sold for $6.25 a ton lower than northwest Europe on May 27, the first time it was at a discount since March 29, Bloomberg data show. Asian naphtha was a premium of $27.50 on April 27.
Rising industrial production in China and India bolstered Asian demand for naphtha, the commodity used to make chemicals found in everything from plastic pipes to shopping bags. China’s output rose 17.8 percent in April from a year earlier, after gaining 18.1 percent in March, the country’s statistics bureau said on May 11. India’s manufacturing growth accelerated in May to the fastest pace in more than two years.
“China’s demand growth has been very strong in the first quarter, but the implications of new oil refining capacity may now be felt,” David Wech, head of research at Vienna-based consultant JBC Energy. Naphtha is made from crude oil alongside gasoline and diesel.
Refiners in Korea and Japan are resuming operations after maintenance shutdowns, said Ravi Narayanaswamy, an analyst with Purvin & Gertz Inc. in Singapore. About 700,000 barrels per day of processing capacity is returning in July, the consulting company estimated in April.
European traders “know how much naphtha supply there will be,” Narayanaswamy said. “July we’re seeing lower shortage, because most of the refineries will be coming back” from shutdowns for seasonal maintenance.
Japan’s Cosmo Oil Co. plans to start a unit at its 220,000 barrel-a-day Chiba unit June 24 after shutting on April 14.
JX Holdings Inc., Japan’s biggest refiner, will resume production from a condensate splitter at its 205,200 barrel-a-day Mizushima plant in June as well as units at its 270,000 barrel-a-day Kashima plant in early July. The company also said it will start units at its 160,000 barrel-a-day Oita plant and its 145,000 barrel-a-day Sendai plant in June.
Nansei Sekiyu K.K., said it will start its 100,000 barrel-a-day Nishihara refinery on July 2 after maintenance. Toa Oil Co Ltd. said it will resume production from a unit at its 185,000 barrel-a-day Keihin at the beginning of June. TonenGeneral Sekiyu K.K. plans to start units at its 335,000 barrel-day Kawasaki plant.
SK Energy Co., South Korea’s biggest refiner, shut its 60,000 barrel-a-day No. 1 crude distillation unit in Ulsan for 15 days on May 12. The 110,000 barrel-a-day Ulsan No. 2 unit will be closed from May 12 to May 23.
Naphtha refining margins fell last week, as petrochemical producers sold off inventories and bought new stock at lower rates to cut average costs. Naphtha is processed in a so-called ethylene cracker into bulk petrochemicals.
“Prices and margins of key chemicals have declined broadly this month,” Nomura International (Hong Kong) Ltd. analysts led by Yong Liang Por said in a May 25 report. “The key culprit for declining prices has been declining crude prices, which has led to destocking efforts to clear higher priced inventories.”
Naphtha processing margins in Asia for July snapped a two day losing streak. They now point to loss of $1.88 a barrel against Dubai crude on June 4, compared with $2.90 a barrel yesterday, according to PVM Associates. Last week they had the biggest weekly decline since April 9 as the refineries resumed operations.
In Europe, naphtha margins weakened to $2.90-a-barrel against Brent crude, the biggest since May 12. This compares to $2.35 a barrel yesterday and $0.33 last week.
“Naphtha cracks have come under pressure this last week in all markets,” Wech said.
The number of tankers booked dropped as potential profits from the arbitrage slide.
The Stresa was booked to carry 80,000 tons from the Mediterranean in early June. The Khawr Aladid was provisionally booked by Itochu to ship 75,000 tons from the Moroccan port of Mohammedia on June 6, Interocean Shipbrokers said. The Petali Lady was fixed to load on June 3 from the region to Japan.
Societe Anonyme Marocaine de l’Industrie du Raffinage, or Samir, as Morocco’s only oil refiner is known, said on May 14 that it awarded a tender to sell 50,000 tons for delivery in June 5 to June 7.
Kuwait Petroleum International said May 26 it had sold 26,000 tons from the 200,000 barrel-a-day Milazzo refinery in Sicily for June 1 to June 3 loading for delivery to Asia.
According to transmissions from ships captured by AISLive on Bloomberg, the Stresa is currently off Malta and the Khawr Aladid is off the coast of Portugal.