Firm naphtha demand in Asia has drawn more cargoes from the US Gulf Coast in October than recent months. At least 5 tankers (4 LR1s and 1 MR) have been fixed in October to load naphtha from the USGC to Japan and Korea. In comparison, around 1-2 tankers per month have been fixed over the past 3 months. Naphtha moving from the USGC to Asia is typically of the heavy or heavy full-range grade. While heavy full-range naphtha is usually used as reformer feedstock, it can also be processed in petrochemical crackers.
Heavy refinery maintenance in the AG as well as the unplanned partial outage at Statoil’s 240 kb/d Mongstad refinery have tightened naphtha supplies in Asia, contributing to the ongoing strength in naphtha cracks. Saudi Aramco’s 225 kb/d condensate splitter at Ras Tanura was shut for a month in October, while ORPIC’s 106 kb/d Mina Al Fahal refinery is shut for 45 days starting 3 October. Asian naphtha cracks hit an almost two-year high last Friday as demand continued to outpace supply. High LPG prices have rendered the fuel unattractive to steam crackers, boosting demand for naphtha.
In order to meet robust demand, Asian buyers have been drawing cargoes from Europe with November arb volumes expected to hit a four-month high of 1.3 mmt as reported by Reuters. However, supplies from Europe are still not sufficient to meet the shortfall. Plagued by the same issues of high LPG prices, European petrochemical buyers have raised naphtha demand. PJK data indicates that naphtha inventories in the ARA region for the week ending 27 October are at their lowest in almost nine months. As such, we expect Asia to remain an outlet for US naphtha in the short run.