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Asia naphtha nears 13-month high; market fundamentals weak


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Asia’s naphtha prices hit new highs in nearly 13 months on Friday, driven by a surge in global crude oil futures, even as market fundamentals showed signs of weakening, market sources said.

Second-half January open spec naphtha were at $468.50-470.50/tonne CFR (cost and freight) Japan basis, up by $11.75/tonne from Thursday.

These levels were last seen at such levels on 6 November 2015, when prices averaged at $469/tonne CFR Japan, according to ICIS data.

The increase in open-spec naphtha prices were largely driven by gains in ICE Brent crude oil futures overnight, following an agreement reached by OPEC to cut production for the first time since 2008.

But naphtha crack spreads to Brent crude futures lost ground, falling to their lowest in six weeks, amid ample supplies.

On 1 December, Asia’s naphtha crack spread to February Brent crude futures was at $66.85/tonne, down from $75.90/tonne a week earlier.

In a similar vein, bearish market fundamentals were reflected in narrower intermonth time spreads.

On 1 December, the intermonth spread between second-half January and the first-half February open-spec naphtha contracts was at $0.50/tonne in backwardation, with forward month prices lower than the prompt month.

The forward intermonth spread was at a $2.00/tonne backwardation this time last week, ICIS data showed.

“[Naphtha supply] looks heavy on the front,” a Singapore-based market source said.

Reflecting the weaker market, spot naphtha trades in Asia were negotiated at lower prices.

South Korea’s LG Chemical bought around 25,000 tonnes of naphtha at a discount of $2.00-2.50/tonne CFR Japan, according to traders.

Prior to this, it bought two similar first-half January delivery shipments to Yeosu and Daesan at a premium of $1.00-1.50/tonne to CFR Japan quotes.

South Asia-origin naphtha have also fetched lower numbers, underscoring the downbeat market mood.

Indian refiner Bharat Petroleum Corp Ltd (BPCL) sold through a tender 35,000 tonnes of naphtha at a premium of around $6.50/tonne to spot Middle East FOB (free on board) quotes for mid-December loading from Mumbai.

BPCL last sold a similar cargo for 8-10 December loading at a premium of slightly above $9.00/tonne to spot Middle East FOB quotes.

Expectations of greater western arbitrage flows also weighed on the market. Around 1.2m tonnes of naphtha is expected to reach Asia in December, up from estimated volumes of 600,000-700,000 tonnes in November, according to traders.

Source from: ICIS

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