South Korea's top ethylene producer, Yeochun Naphtha Cracking Center, has bought via tender six cargoes of open spec naphtha of 25,000 mt each for delivery in the second half of September at a discount of $13/mt to the Mean of Platts Japan naphtha assessments, CFR, Yeosu, traders said Thursday.
This would push the CFR South Korea discount to MOPJ naphtha assessments to the lowest level since January 9-13, 2015, when it was assessed at a $13/mt discount.
The CFR South Korea differential was last lower on July 4, 2011 when it was minus $15.5/mt, S&P Global Platts data showed.
YNCC last bought via tender two cargoes of 22,500-27,500 mt each of open spec naphtha with minimum 70% paraffin for H1 September delivery at a discount of $10/mt to MOPJ naphtha assessments, CFR Yeosu, traders said.
Another South Korean cracker operator Lotte Chemical Corp. this week bought a cargo of full range naphtha for H2 September delivery, CFR Daesan, at a discount of $11.50-$12/mt to MOPJ naphtha assessments.
The differential has been falling steadily since hitting a peak of plus $2.50/mt to MOPJ naphtha assessments between December 23 and 28 last year.
Current cheap naphtha and LPG feedstocks have prompted South Korean petrochemical makers to run their steam crackers at 100% of capacity to capitalize on strong ethylene margins, trade sources said.
The Northeast Asia ethylene versus naphtha margins struck a 2 1/2-month high of $750/mt on August 3, before easing to $706/mt on Wednesday, Platts data showed.
This was higher than in August last year, when the margins hovered around $400-$600/mt.
Other than the Yeosu olefins conversion unit that was shut last Wednesday due to a mechanical outage and slated to resume around end-August, YNCC is operating all its other units at full capacity.
"The OCU's initial start was [in September] last year. It's an extra plant. So others are on maximum operation [rate]," an industry source said.
YNCC operates three naphtha-fed steam crackers at Yeosu. The No. 2 steam cracker, which has a capacity of 580,000 mt/year of ethylene and 270,000 mt/year of propylene, was shut March 10 for one month of maintenance.
The Lotte Chemical cracker, which has a design capacity of 1 million mt/year of ethylene and 480,000 mt/year of propylene, is also running at 100% of capacity, a source familiar with the matter said.
"The running rate for both plants are full for LPG and naphtha," the source said, adding that about 17,000-18,000 mt/day of naphtha and 1,300 mt/day of LPG is used as feedstocks. The source added that Lotte's feedstock purchases were only limited by its operating rates and tank storage capacity.
Lotte Chemical had shut its steam cracker at Yeosu from April 11 to May 6 for maintenance.
NAPHTHA CRACKS HIT 4-YEAR LOWS
The strong ethylene margins contrasted with narrower naphtha cracks. The crack between CFR Japan naphtha and front-month ICE October Brent crude plummeted to $20.52/mt last Friday, the weakest since May 20, 2012. On Wednesday it was $20.85/mt, Platts data showed.
The freefall in naphtha prices and cracks was driven by a glut in Asia, amid incessant exports from India with all state-owned refiners have been selling large amounts. Private refiners Reliance Industries Ltd. and Essar Oil have also been exporting naphtha.
India has exported more than 700,000 mt of naphtha in August and is still offering for the month, according to market sources. Indian state-owned refiners have also started offering September-loading cargoes.
Middle Eastern producers such as Kuwait Petroleum Co., Qatar's Tasweeq and the UAE's Abu Dhabi National Oil Co. are also offering spot naphtha cargoes to Asia.
Kuwait's KPC early this month sold an end-August cargo at a discount of $5.50/mt the Mean of Platts Arab Gulf naphtha assessments, FOB, the first time since the end of 2014 that Middle Eastern spot naphtha has traded at a discount.
ADNOC's recent offer via tender of a 75,000 mt cargo for September 11-13 loading had been withdrawn due to low bids, traders said.
They put current FOB Middle East differentials at around $7/mt to MOPAG naphtha assessments.
Asian naphtha demand is also limited by outages and peak cracker maintenance season, which will last through the end of October.
South Korea's SK Innovation's No. 2 steam cracker at Ulsan, which can make 660,000 mt/year of ethylene and 360,000 mt/year of propylene, is due to close for a month from mid-September.
With CFR propane swaps at steep discounts, surpassing $70/mt to MOPJ naphtha swaps, LPG is also seen as a more attractive feedstock to the crackers with the operational flexibility.
