The CFR Japan naphtha crack against front month December ICE Brent crude futures slumped to a three-month low of $74.75/mt Friday, as the market struggled with sluggish demand and ample supplies, market sources said Monday.
The crack was last lower on July 2, at $73.425/mt, S&P Global Platts data showed.
Demand has been lackluster as some steam crackers in the region were shut for scheduled maintenance. Additionally, narrowing petrochemical margins weighed on naphtha sentiment, market sources said.
The naphtha spread against downstream ethylene has crunched in the past month. The CFR Northeast Asia ethylene spread to CFR Japan naphtha plunged to $420.12/mt on October 19 from $608.75/mt on September 21, S&P Global Platts data showed.
Some Asian petrochemical producers are contemplating run cuts to steam cracker operations should the spread narrow further, a source with a North Asian cracker said. No run cuts have yet been effected as end-users continue to monitor the situation.
On the supply side, a weakening Northwest European naphtha market last week, on the back of chronically low gasoline demand has heaped further pressure on Asian naphtha cracks.
The front-month NWE naphtha crack plunged to the lowest since May 2015 to minus $5.95/b October 18, before recovering slightly to minus $5.85/b last Friday. The crack was last lower at minus $6.30/b on May 7, 2015.
The surplus in Europe has fueled expectations of more arbitrage inflow into Asia. Currently, about 1.6 million mt of naphtha from Europe and the US is expected to land in Asia in November, steady from October volumes.
Cash differentials in Northeast Asia remained in discounts. South Korea's Yeochun Naphtha Cracking Center last Thursday bought an unspecified volume of H1 December delivery naphtha into Yeosu at a discount of $4-$5/mt to the Mean of Platts Japan naphtha assessment, CFR.
Going forward, some market participants were hopeful that demand might improve when steam crackers restart from scheduled turnarounds.
