Japanese petrochemical companies Showa Denko and Mitsui Chemicals have bought butane instead of naphtha amid a brief period of high naphtha prices, capitalizing on the abundance of butane in Asia, industry sources said recently.
Traders said the total volume taken was less than 50,000 mt. The companies each bought at least one parcel of butane for delivery in H2 December or H1 January, sources said.
Japanese traders said Showa Denko normally takes a butane cargo of 11,000 mt, while Astomos takes another 11,000 mt into its system at Oita. Sometimes Showa Denko takes a full 22,000 mt parcel, they said.
Mitsui Chemicals also normally takes a butane cargo of 11,000 mt, sources said. Japan petrochemical producers usually buy butane from other Japanese LPG traders, they added.
"Butane prices became low enough for petrochemical companies to switch for a short period around November 10," a source familiar with the matter said.
"This [butane purchase] was due to the high premium for light naphtha," a trader said.
Butane has a higher ethylene yield, but produces less aromatics. So switching to LPG from naphtha means that petrochemical makers will need to buy benzene for phenol production, which is not economical.
So crackers typically continue to use naphtha and even if switching to LPG, keep it to not more than 30% of the total feedstock.
Butane prices are expected to be typically higher than naphtha in Q4, a quarter when overall LPG demand usually goes up.
But naphtha prices were above butane on November 2, in line with crude futures, even as butane supply rose with the arrival of more evenly split cargoes from the US to Asia.
The Mean of Platts Japan naphtha premium to CFR Japan butane for delivery in H1 December hovered around $13.50-36.875/mt over November 7-15, S&P Global Platts data showed.
"When butane is lower than naphtha by $30-40/mt, petrochemical companies could switch to butane," a source at a petrochemical company said.
However, MOPJ naphtha returned to a discount to CFR Japan butane by November 17, making butane unviable as petrochemical feedstock.
The abundance of butane in this region flipped the spread from the usual premium it has commanded over propane since May.
The last time LPG replaced naphtha as petrochemical feedstock was in April, when Taiwan's Formosa Plastics bought 23,000 mt of propane for delivery to Mailiao over May 1-10.
A source at Formosa Petrochemical said that the company had not bought LPG recently as cracker feedstock and had no plans to do so either at current naphtha prices.
The company has three naphtha-fed steam crackers in Mailiao with a combined ethylene production capacity of 2.93 million mt/year.
On Thursday, the spread between naphtha and butane narrowed, making it uneconomical, industry sources said.
Since the volume of butane bought by the Japanese companies was relatively small, the impact on the naphtha market was limited, a source said.
Showa Denko operates a steam cracker with an ethylene production capacity of 615,000 mt/year at Oita in western Japan.
Mitsui Chemicals operates a steam cracker with 553,000 mt/year ethylene production capacity at Chiba in Tokyo Bay and another with 455,000 mt/year ethylene production capacity in Osaka.
