Asian petrochemical producers are mulling a feedstock switch from naphtha to LPG as naphtha prices hover at a near 10-month high as LPG prices fall, market sources said Tuesday.
Naphtha is the main feedstock for cracker operators in North and Southeast Asia, but switching to LPG -- propane and butane -- as a cracking alternative becomes viable when it is priced 90% or less than naphtha, or when LPG is around $50/mt cheaper than naphtha.
CFR Japan propane and butane prices for delivery over first-half June were assessed at $956/mt and $1,001/mt, respectively, at the Asian close Monday, while naphtha was assessed at $1,053.75/mt CFR Japan for the same laycan, Platts data showed.
This makes the naphtha-propane price spread $97.75/mt and the naphtha-butane spread $52.75/mt, making it more economical to crack LPG.
Depending on individual refinery configurations, petrochemical producers can swing usage of LPG to comprise 10-40% of total feedstock, in varying proportions of propane and butane.
Naphtha cargoes have been commanding high premiums since late January due to a combination of crimped supply from the West and firm demand in North Asia. Naphtha found further support as LPG prices soared early in the year, pushing butane out of the feedstock pool as an alternative cracking feed, and forcing North Asian end-users to rely solely on naphtha.
Platts assessed the CFR Japan naphtha benchmark at a 10-month high of $1,088.13/mt March 15, and prices have remained firm since, with Monday's $1,053.75/mt CFR Japan assessment down $34.38/mt from that date.
LPG prices have been falling steadily since late February as demand for heating fuel waned after the northern hemisphere winter. Prices hit a year-to-date high February 28 when Platts assessed propane at $1,305/mt CFR Japan before diving $335/mt to $970/mt CFR Japan Monday for H1 May.
South Korean cracker operators were currently considering a switch to LPG, trading sources said, while Taiwan's Formosa was in the market Monday seeking LPG for H1 May delivery.
A Japanese cracker operator bought a small butane parcel of less than 25,000 mt for H2 May delivery last week, a source close to the company said. "I think propane is almost there, price wise," a trading source said Monday.
