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Toy Delay Means Naphtha Premium at 10-Month Low: Energy Markets

Barbie dolls made by Mattel Inc.
Barbie dolls, made by Mattel Inc., Photographer: Jin Lee/Bloomberg

July 16 (Bloomberg) -- Asian prices for naphtha fell to a 10-month low relative to crude oil as Chinese toy manufacturers hold back orders for raw materials used to make plastic and wait for consumer spending in Europe to rebound.

The price of benchmark naphtha for delivery to Japan fell 0.8 percent to $631.25 a ton yesterday, making it $57 more than Brent crude, according to data compiled by Bloomberg. The premium is down 61 percent from $147 in December and is the lowest for any July since 2005.

Demand for naphtha, which is used to make chemicals and plastics in keyboards and Barbie dolls, typically rises at the start of August as Asian toymakers boost production for the year-end holidays, according to Washington-based PFC Energy Inc. This year, manufacturers are holding off as tax increases and unemployment sap orders from Europe, the destination for about 20 percent of China’s exports.

“The production ramp-up is expected to occur toward the end of August or beginning of September this year as poor demand from Europe is weighing on Asian producers,” said Nathan Schaffer, a director at PFC Energy.

The difference, or crack spread, for naphtha relative to crude has widened in August in three of the past four years, according to data compiled by Bloomberg. The exception was in 2008, at the height of the global financial crisis.

Naphtha prices have fallen 14 percent this year, while crude futures in New York have lost 3.2 percent. Prices of injection-grade polypropylene, a resin used in toy production, are down 11.5 percent, data from ICIS pricing showed.

‘Hate’ Cutting Toys

The decline in demand for plastics may still be limited as purchases pick up toward the end of the year, according to Sean McGowan, a New York-based analyst at Needham & Co. who covers toymakers including Hasbro Inc. and Mattel Inc.

“Parents hate to cut back on toys,” he said.

Traders may send shipments of naphtha to Asia from Europe should the crack spread widen, adding to a glut of the commodity, said Jim Weinrauch, an industry consultant at Naphtha Information Services Pte in Singapore.

“Asia doesn’t need the West for supply,” Weinrauch said. “It’s always a possibility, of course, that the Asian crack will rise at least temporarily if the region sees too many Arab Gulf cargoes heading to the West.”

Asian and Middle East naphtha production has increased as refiners resume operations following maintenance last month. JX Holdings Inc. said on July 8 it will restart a 145,000 barrel-a-day crude distillation unit at its Sendai, Japan, refinery on July 11 following a month-long stoppage. Kuwait National Petroleum Co. said on March 24 it may resume output at units in Mina Abdulla after maintenance in April and June.

Europe Slowdown

Naphtha demand remains weak as retail spending in the 16-nation euro region fell 0.4 percent in the first five months of the year, the European Union’s statistics office in Luxembourg said on July 5. Unemployment jumped to 10.1 percent in April, the highest level in 12 years, the office reported on June 1.

Demand has also been hurt by evidence of slowing growth outside Europe. China’s government said yesterday that gross domestic product rose 10.3 percent in the second quarter, less than the rate forecast by analysts in a Bloomberg survey. The U.S. Federal Reserve said in minutes of its June meeting published this week the risks to the outlook “shifted to the downside.”

“Aside from the bank-related concerns in Europe, the major issues are an apparent slowdown in the growth rate in China and fear that falling consumer confidence and decreasing money supplies in the U.S. may result in a deflationary cycle,” analysts at Purvin & Gertz Inc. led by Singapore-based Ravi Narayanaswamy wrote in a monthly report.

To contact the reporter on this story: Ann Koh in Singapore at

To contact the editor responsible for this story: Clyde Russell at

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