May 16, 2018 / 7:05 AM / a year ago

Western naphtha shipments to Asia expected to hit 3-mth low in June

* Traders see western shipments to Asia around 1.1 mln T in June

* Lower imports could stoke profits at Asian naphtha refiners

* Asia is structurally short of naphtha, relies on imports

* But lower gasoline prices could sap bull-run in naphtha prices

By Seng Li Peng

SINGAPORE, May 16 (Reuters) - Western naphtha shipments to Asia are likely to hit their lowest in three months in June at around 1.1 million tonnes, crimped by refinery maintenance in Europe, traders said on Wednesday.

The third-straight monthly decline in western supply would come amid strong demand in Asia, with the region’s naphtha refining profits NAF-SIN-CRK, known as cracks, this week hitting their highest seasonal level since 2015 at almost $100 per tonne.

Asia is structurally short of naphtha, a feedstock used to make plastics and other petrochemical products, and is dependent on the West and the Middle East to fill the gap.

Although there remains time to book western cargoes for June to Asia, volumes were not expected to increase by much.

“We have been seeing this amount of 1.1 million in the last two to three weeks and it could stay at that level,” said a Singapore-based trader at a company that regularly deals in naphtha. He declined to be identified as he was not authorised to speak with media.

The monthly average for January-May arrivals stands around 1.36 million tonnes.

The trader added that Asia could need around 1 million tonnes of open-specification naphtha in June, but most of the barrels coming in were heavier grades.

Traders had expected high prices for crude oil, used as a feedstock for making naphtha, to curb appetite for naphtha, but demand has remained robust.

“Still-strong economic growth means that petrochemical players have been able to pass higher feedstock costs for naphtha down the value chain, and this factor should continue to offset the effect of higher underlying crude prices overall,” said Michael Dei-Michei, head of research at consulting firm JBC Energy.

Crude prices hit their highest levels since late 2014 this month as the Organization of the Petroleum Exporting Countries (OPEC) has been withholding supplies since 2017 to push up prices and as the United States has announced new sanctions against major crude exporter Iran.


Supplies from the Middle East have also been slow, the Thomson Reuters Oil Research team said a weekly report.

May shipments from the Middle East at up to 2.7 million tonnes were below the 2017 monthly average of 2.9 million tonnes, according to the report.

The effects of a tight market have sent spot premiums for Indian cargoes of naphtha to a three-year high at more than $29 a tonne over Middle East quotes on a free-on-board (FOB) basis.

However, any weakness in gasoline markets could sap the recent bull-run in prices for naphtha, which can also be used as a blending component for the fuel.

“Should seasonal gasoline strength into the summer fail to materialise, then that would be a good reason for more naphtha to price out of the gasoline pool, causing renewed weakness in cracks,” said Dei-Michei.

Since the start of the year, Asian gasoline has largely been in a contango structure, where front-month prices are lower than those for later delivery, implying oversupply.

Reporting by Seng Li Peng Editing by Henning Gloystein and Joseph Radford

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