New Delhi [India], February 6 : The Asian petrochemical landscape witnessed a significant development as the key spread between ethylene and naphtha soared to a nine-month high, driven by tumbling naphtha prices attributed to an uptick in supply.
According to S&P Global Commodity Insights (GCI), this critical spread, closely monitored by petrochemical producers, widened to USD 289.50 per metric ton at the Asian close on February 5, marking a substantial increase of USD 116.50 per metric ton, or 67.34 per cent, from the previous week.
Despite lingering below the USD 300-USD 350 per metric ton range for non-integrated producers, the spread surpassed the typical breakeven point of USD 250 per metric ton for integrated producers.
S&P Global Commodity Insights data revealed that the spread had not reached such levels since May 5, 2023, indicating a notable shift in market dynamics.
The surge in the spread was primarily propelled by sluggishness in the Asian naphtha complex, fuelled by anticipations of enhanced supply availability by the second half of March.
Sources indicated that naphtha shipments navigating the extended Cape of Good Hope route are expected to arrive in Asia by the end of March, coinciding with the anticipated return of Middle Eastern refineries from turnarounds during the same period.
Furthermore, a decline in naphtha demand was observed, as North Asian end-users increasingly substituted a larger proportion of their feedstock with co-distillate propane.
Notably, South Korea's LG Chem disclosed plans to maximize the utilization of LPG at its steam crackers from the second half of February, with similar strategies anticipated from fellow South Korean petrochemical player Lotte Chemical.
In tandem with the softer naphtha market fundamentals and tracking lower crude prices, the physical cost and freight (CFR) Japan naphtha market witnessed a narrowing to USD 650.50 per metric ton at the Asian close on February 5, down USD 86.50 per metric ton from the previous week's peak.
Despite the rise in ethylene margins, downstream petrochemical demand remained tepid, constraining steam cracker run rates.
Meanwhile, the Asian ethylene market experienced an uptick, propelled by tight supplies amid lower steam cracker operations and delays in deep-sea cargo arrivals from the US due to logistics constraints.
Asian ethylene prices surged to USD 940 per metric ton CFR Northeast Asia on February 1, marking the highest level since March 30, 2023.
While spot demand is anticipated to remain robust for March delivery, end-users exhibited reluctance to accept prices exceeding USD 950 per metric ton CFR Northeast Asia, citing negative margins for downstream production, particularly polyethylene.
The spread between polyethylene and ethylene remained narrow, highlighting the challenging market conditions for petrochemical producers.
With approximately 60 per cent of ethylene in Asia dedicated to polyethylene production, the persistently negative margin between polyethylene and naphtha underscored the ongoing pressures within the sector.
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor