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Register NowAsia's gasoline and naphtha markets eased in mid-morning trade July 20 amid continuing uncertainty over fuel demand as the coronavirus pandemic shows no signs of abating, sources said.
South Korean steam cracker operators were expected to gradually return to naphtha as key feedstock as LPG's price advantage eases and more arbitrage naphtha supply is expected to arrive in Asia in September, though overall naphtha demand is expected to remain subdued due to cracker maintenance, market sources said.
September ICE Brent crude futures stood at $42.86/b at 0420 GMT July 20, down from $43.09/b at the Asian close July 17.
NAPHTHA
** The CFR Japan naphtha physical benchmark opened July 20 at $374.125/mt, down $5/mt from the Asian close on July 17, on softer crude prices.
** The front month August/September Mean of Platts Japan naphtha swap spread had narrowed 25 cents/mt from July 17 in mid-morning trade July 20, with broker indications at $2.50/mt.
** The Asian propylene-naphtha margin hit an eight-week high of $400.875/mt on July 17, supporting olefin earnings for Asian steam crackers. The spread was last higher on May 29 at $422.875/mt. The typical breakeven spread is around $250/mt, market sources said.
** While overall supply remains limited by refinery run cuts, some tightness has eased as trading moves to the H1 September delivery cycle, when more arbitrage volumes are expected.
** Asia's naphtha demand was slated to edge down due to cracker maintenance by Taiwan's Formosa and Japan's Idemitsu, and other steam crackers switching out some naphtha feedstock for LPG for July, August and September, sources said.
GASOLINE
** The August FOB Singapore 92 RON gasoline opened July 20 at $44.30/b, edging down 0.82% in tandem with global crude markets.
** The result of Taiwan Formosa Petrochemical's gasoline term sale tender due later July 20 will be closely watched, with the buyers securing at least one 250,000-barrel cargo/month of non-oxygenated 93 RON gasoline from August to December.
** Sentiment is expected to remain subdued this week amid heavy gasoline supply from China, one source said. High refinery crude throughput, high domestic inventories and a slight slowdown in domestic demand in China due to poor weather was likely to spur refiners to push cargoes overseas, market sources said.
** Support from the US RBOB/Brent crack will remain limited as further spikes in coronavirus cases in the US force states to reevaluate reopening plans.
LPG
** The front month August CP propane swap was indicated slightly higher July 20 at $375/mt from $374/mt on July 17. CP August/September propane swaps were notionally $18/mt in backwardation versus $17 at the July 17 close, while September/October propane swaps were nationally $3.50/mt in backwardation versus $2/mt the previous session
** Asia's LPG has been rising since July 8, supported by demand for August-delivery propane from South Korean petrochemical makers. But as propane's discount to naphtha narrows toward $20/mt, traders expect petrochemical demand for LPG to wane. Buyers for August deliveries included Hanwha Total Petrochemical and E1 Corp., while SK Gas was bidding at mid- to high single digit/mt discounts to FEI, CFR basis, versus high-teen discounts/mt to FEI seen for late July/H1 August delivery.
** Front cycle CFR North Asia H2 August delivery propane was assessed at $348.50/mt July 17, a near three-month high.
** Traders expect CP swaps to weaken as Saudi Arabia eases record production cuts in August. Sources said most nominations for Saudi August-loading term cargoes have been advanced, so it was likely they are facing high stocks. ADNOC's August acceptances of term nominations saw no cuts or delays, as did Qatar Petroleum's. Improved propane demand West of Suez led to vessel owners ballasting to the Trans-Atlantic route in H1 July, leading to balanced-to-tight VLGC supply loading from the Middle East. VLGC rates on the Persian Gulf to Japan route were seen at $35/mt July 20, the highest since May 18.
** Middle East freight may find support from up to four additional spot cargoes offered for August loading, sources said. Qatar's QPSPP is expected to offer H2 August loading cargo in addition to a mixed parcel awarded for August 4-7 loading, while ADNOC may offer up to three spot cargoes for August loading, sources said.
** Less US LPG is set to arrive in Asia for August than in July, with slow steaming and longer routing of VLGCs from the West, as traders try to capitalize on the contango in the CFR North Asia market.
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July 20, 2020 at 12:30PM
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