Japanese petrochemical companies have concluded term naphtha deals for open spec grade, loading over January-December 2018, with trading companies at higher differentials of plus $1-$5/mt to the Mean of Platts Japan naphtha assessments, up by around $5/mt from January-December 2017, industry sources said this week.
The differentials were concluded at discounts for January-December 2017, the sources added.
"The current tightness in supply impacted the term negotiations," one of the sources noted.
The naphtha supply and demand fundamentals tightened in the fourth quarter of this year because demand firmed amid strong cracking margins. Industry sources said that steam crackers in the region have been running at full capacity.
The crack spread between MOPJ naphtha and ICE Brent Futures exceeded $100/mt mark on October 12, and it was $113.825/mt Thursday, S&P Global data showed. The spread averaged at $75.05/mt over January-September this year.
The CFR Northeast ethylene prices have been hovering around $1,300/mt since September, leaving more than $300/mt of cracking margins to petrochemical companies, Platts data showed.
LPG prices stayed relatively high in the fourth quarter, and petrochemical companies could buy only a limited volume of butane as a substitute of naphtha. This was one of the factors the tightened the supply, trade sources said.
As a result, term contract prices for naphtha supplied by the Middle Eastern countries jumped for 2018.
Kuwait Petroleum Corp. has sealed term contracts with Asian end-users and traders for its December 2017-November 2018 naphtha cycle at higher premiums than the previous contract, Platts reported previously.
The premium for full-range naphtha was agreed at $9.50/mt over the Mean of Platts Arab Gulf naphtha assessments, on an FOB basis, up from $4/mt of the December 2016-November 2017, while the premium for light naphtha was concluded at $11/mt to MOPAG naphtha assessments, up from $5/mt for the previous cycle, Platts reported previously.
ADNOC also concluded its term naphtha premium at a higher value than the previous cycle. Low sulfur naphtha loading from Ruwais Refinery-East was concluded at a premium of $15.50/mt, up from $8/mt for the January-December 2017, and low sulfur naphtha loading from Ruwais Refinery-West and splitter naphtha at a premium of $14.50/mt, up from $7/mt for the previous cycle, Platts reported previously.
Meanwhile, the premiums which Japanese end-users fixed with trading companies did not rise as much as FOB contracts with the Middle Eastern suppliers because the market does not expect the supply tightness to last for the entire year of 2018.
Japan has a total ethylene production capacity of 6.155 million mt/year, and it exported 16.7 million mt of naphtha for petrochemical use in 2016, according to data from the Ministry of Finance.
