SINGAPORE: Four major Middle East producers will export to Asia an unusually huge amount of at least 700,000 tons of spot naphtha for loading in July-August, further damping market sentiment at a time of slow demand, traders said on Friday.
The abundant spot exports came as term buyers in Asia had either dropped their contracts or reduced the volumes due to high prices, traders said.
"For the buyers who still hold the contracts, they may not be keen on lifting July-August cargoes due to uncertainties surrounding the (petrochemical) margins," one trader said.
Naphtha demand has been slow as petrochemical margins have been hit by sluggish buying interest from China, Asia’s top petrochemical importer.
Cracks, the premiums/losses obtained from refining Brent crude into naphtha, fell to their lowest level in 8-½ months on Friday to less than $77.00 a ton.
Saudi Aramco, Qatar’s Tasweeq and Abu Dhabi National Oil Co (ADNOC) do not usually sell barrels in the spot market, while Kuwait Petroleum Corp (KPC) sells light grade regularly as spot parcels, but not its full-range naphtha.
These four suppliers export an estimated total of more than 20 million tons of naphtha a year, largely via term contracts.
But in the last one to two weeks, the four suppliers kept pouring spot barrels into the market, with ADNOC selling more than 200,000 tons to Japanese and Western trading houses for August loading from Ruwais in a surprise move.
"We are swimming in a pool of naphtha," said a second trader.
Asia could see the rare trend of high spot barrels from the Middle East persists through the short haul, as the suppliers find ways to release their cargoes.
ADNOC has additional naphtha to sell as it has ramped up production at its splitters after obtaining more condensate feedstock from its liquefied natural gas (LNG) train.
It will now have an additional 2 million tons of naphtha a year but its high term premiums set for July 2010-June 2011 at $22.50-$24.00 a ton to its own price formula had put some buyers off, with at least two buyers dropping the contracts.
Similarly, South Korean buyers had turned their back on KPC after it decided to sell its August 2010-July 2011 supplies at premiums at $21.00 a ton to Middle East quotes on a free-on-board (FOB) basis.
KPC sold more than the 74,000-tonne light and full-range grades for July loading it had initially shown in its tender.
Saudi Aramco, which saw some of its customer reducing term volumes, has already sold a rare spot parcel from Jubail and is in talks to sell another 55,000 tons for co-loading from Jeddah and Yanbu on July 14-15.
Tasweeq, which has sold more than 100,000 tons for July, is looking to sell up to 100,000 tons for August in a tender due to be awarded on July 15.