Asian LPG has become less attractive to North Asian petrochemical producers as steam cracker feedstock as the spread between propane and naphtha narrows, market sources said Friday.
The physical CFR Japan propane spread to CFR Japan naphtha stood at minus $39.25/mt at the Asian close Thursday, the narrowest in nearly seven months.
The spread was last narrower on April 18 when it was minus $38.50/mt, S&P Global Platts data showed.
The physical spread between propane and naphtha was at minus $62.875/mt on November 1, but was minus $39.25/mt Thursday as LPG prices held steady while crude plunged.
The butane-naphtha spread was even narrower at minus $2.25/mt Thursday, with butane assessed $37/mt higher than propane.
In the swaps market, the spread between the December Argus Far East Index propane swap and the December Platts CFR Japan naphtha swap was minus $41/mt Thursday.
"We are always a buyer if the naphtha-LPG spread is wide," said a source with a petrochemical producer. "$40s is not enough," he said, referring to the spread between naphtha and LPG.
Naphtha is the mainstay petrochemical feedstock in Asia for steam crackers, but producers switch to LPG -- which typically comprises propane and butane -- as an alternative if its price is around 90% of naphtha, or when LPG is more than $50/mt cheaper than naphtha.
Taiwan's privately owned Formosa Petrochemicals may skip spot purchase of LPG for December delivery if the LPG-naphtha discount remains lower than $50/mt.
LPG consumption at Formosa Petrochemicals' steam cracker in Mailiao was at 15-20% of total feedstock in October, and the company plans to maintain it at this level this month too after having secured two spot cargoes for November delivery, a source with knowledge of the matter said.
But LPG consumption may decrease in December. "In December, [Formosa] will crack less than 10% [of total feedstock usage] if the company cannot secure spot cargoes," the source said.
The company had bought two cargoes of LPG for November delivery last month. The first parcel for delivery over November 11-20 was bought at $76-80/mt discount to Mean of Platts Japan naphtha assessments, DES Mailiao basis, and the second clip for November 21-30 at $51-55/mt discount to MOPJ naphtha assessments, DES Mailiao basis.
Asian LPG has resisted the slump in crude prices in the past 10 days. Front-month ICE Brent crude futures contract at the Singapore 4:30 pm close (0830 GMT) fell by 9.5% or $4.91/b ($39.28/mt) from October 24 to be assessed at $47.03/b on Thursday.
Asian propane fell by 2.6% or $10.50/mt over the same period to $393/mt Thursday.
Demand for December-delivery propane was high, mainly from traders and oil majors looking to cover short positions.
Demand for propane typically spikes during winter.
End-user demand is seen mostly from China, with Japanese and South Korean buyers still largely quiet.
Buyers were said to be waiting on the sidelines as crude prices continue to fall. They were likely to emerge to replenish stockpiles once crude prices became more stable, sources said.
