Asia's naphtha prices, margins hit 2014 highs on demand growth, costly LPG

By Mohi Narayan

NEW DELHI (Reuters) - Asia's naphtha prices and refining margins jumped to their highest since 2014 propelled by strong demand growth for the petrochemical feedstock and as alternative liquefied petroleum gas (LPG) becomes expensive amid a global power crunch.

LPG prices from the United States, Middle East and Europe have jumped by roughly a third in the past three months to their highest since 2014 on economic recovery and a global power crunch, pushing Asian petrochemical makers to import more naphtha from the Middle East and West.

Asia is the top consumer and importer of naphtha, used to make plastics and textiles, dilute heavy crudes and sometimes as a fuel. More ethylene crackers are coming online next year across Asia, which will widen the region's naphtha deficit further and increase imports by more than 2% in 2022, analysts said.

"The naphtha deficit will remain strong in first quarter as LPG remains priced out of Asian and European crackers," Armaan Ashraf, consultant at consultancy FGE said.

Global naphtha demand has exceeded pre-COVID-19 levels this year by about 400,000 barrels per day (bpd), the International Energy Agency said in its latest monthly report.

That fuelled a 30% rebound in Asia's benchmark naphtha prices since Aug. 20 to $795 per tonne on Oct. 18, the highest since 2014, while refiners' margins for producing the light distillate from Brent also hit a 2014 high of $152.78 a tonne, Refinitiv Eikon data showed.

NEW CRACKERS

There will be 2.05 million tonnes per year (tpy) of additional ethylene capacity online by the end of the first quarter of 2022, according to analysts.

South Korea's Hyundai Oilbank Corp's joint-venture with Lotte Chemical will start operating its 850,000-tpy cracker by end-2021, while India's HPCL-Mittal Energy Ltd (HMEL) plans to start its 1.2 million-tpy cracker at Bathinda refinery in northern Punjab by end-March 2022, industry sources told Reuters.

With growing demand, consultancies Energy Aspects and FGE expect Asia's naphtha import deficit to widen by 2 million to 2.27 million tonnes (49,000-56,000 bpd) in 2022, while crackers could continue to shun more expensive LPG feedstock in the near-term.

Asia's naphtha demand is forecast to grow by 8.56 million tonnes to 204.39 million tonnes in 2022 from this year, while supply will grow by 6.3 million tonnes to 140.4 million tonnes, according to Energy Aspects.

"Asian naphtha balances will tighten by 2.27 million tonnes year-on-year to 64 million tonnes in 2022, as demand increases continue to outpace rising supply," Energy Aspects' analyst Ciaran Tyler said.

FGE expects Asia's naphtha deficit to widen by 50,000 bpd in 2022, Sri Paravaikkarasu, director for Asia oil, said.

"As we see Middle East naphtha surplus increasing next year, we should see more inflows coming into Asia," she said, adding that additional barrels will also come from the West.

Middle East naphtha exports to Asia have averaged around 3.48 million tonnes per month this year, higher than the pre-pandemic level of 3.19 million tonnes per month in 2019, Refinitiv data showed.

(Reporting by Mohi Narayan; Editing by Florence Tan & Simon Cameron-Moore)