MOSCOW (MRC) -- Tighter Asian supplies of naphtha have driven price premiums for the petroleum product to more than 12-week highs as cargoes from the West dry up, offsetting a drop in demand caused by a rise in the use of liquefied petroleum gas (LPG) as an alternative, reported Reuters.
But with many Asia facilities that process naphtha - a feedstock for producing petrochemicals used to make plastics - going into maintenance in the next couple of months, the market tightness may be short-lived.
Naphtha premiums in South Korea, Taiwan and Malaysia have been rising since early March, with levels last week reaching over USD10 a tonne, the highest since December.
Asia's naphtha crack, which describes the profitability of producing the fuel, also trended higher to USD91.20 a tonne at the end of March, the highest since Jan. 19 and 17 percent higher from a year earlier.
Traders said these developments were largely due to fewer eastbound cargoes of naphtha despite strong demand.
"Demand is still doing well. Asian steam crackers not undergoing turnarounds are running flat out and there is only so much naphtha that can be substituted with LPG before co-product margins react," said Michael Dei-Michei, head of research at consulting firm JBC Energy.
As for east-bound cargoes, about 1 million tonnes were estimated to have arrived in March from Western suppliers, including in Europe and the Mediterranean, with April arrivals expected at 1.3 million tonnes, traders said.
That is down from nearly 2 million tonnes in January and 1.5 million tonnes in February.
But the trend may not last beyond May.
"Constraints on naphtha supply should ease as we move past maintenance season," said Dei-Michei.
As a result, Asia's supply deficit is expected to shrink.
Japan's Keiyo, Mitsubishi Chemical, Mitsui Chemicals and Asia's top naphtha importer, Formosa Petrochemical Corp in Taiwan, are due to start maintenance at their crackers in May or June.
In total, seven crackers in Japan were scheduled to undergo maintenance this year versus three units in 2017 while South Korea has turnarounds planned for four crackers compared to two last year.
"Asia will need about 1.4 million tonnes of naphtha from the West in May but this will drop to 800,000 tonnes in June," said a trader who tracks naphtha and LPG.
"The naphtha market is at its peak now. The second half of this year will be tough," he said.