Asia’s naphtha crack spread is expected to charge higher after hitting over a 10-month high earlier this week, as regional demand outpaces supply in spite of heavy deep-sea inflows from Europe, traders said on Wednesday. 
The prompt H1 January naphtha crack spread versus January ICE Brent crude soared to a 10-month peak of $171.80/tonne (€132.30/tonne) on Tuesday. The crack spread was assessed at $162.93/tonne in the week ended 26 November.
The spread between H1 January/H1 February contracts firmed to a backwardation of $9.50/tonne on Tuesday, up $1/tonne from Monday. The inter-month spread was quoted at $8.25/tonne on Friday.
The spread between H2 January/H2 February contracts strengthened to a backwardation of $8.50/tonne on Tuesday.
“Naphtha supply is tight in Asia. There isn’t much supply coming from the Middle East, and Asian refineries are ramping up diesel production,” said a trader in Singapore.
Refinery maintenance has drained off exports from the Middle East producers, and a diesel supply crunch in China pushed Asian refineries to shore up middle distillate output, traders said.
Ethylene prices were quoted at $1,080-1,120/tonne CFR (cost & freight) NE (northeast) Asia, up from $960-980 a month ago.
Although Asia is set to receive some 600,000 tonnes of deep-sea naphtha supply from Europe in December and January, traders said the volumes would not be enough to meet the strong demand. 
“China is importing a lot of naphtha as domestic supply is being squeezed. The arbitrage supply from Europe is not sufficient,” said a Chinese trader. 
Another trader added: “Downstream prices are still doing well.”
A propylene cargo was booked by an end-user at $1,250/tonne CFR China for December/January shipment – a level deemed relatively strong.
Reflecting strong end-user demand from northeast Asia, Honam Petrochemical bought 100,000 tonnes of spot full range and open spec naphtha for H1 January delivery, at Japan market quotes plus $7.50/tonne CFR Korea and open spec naphtha at plus $6.00/tonne to Japan market quotes CFR Japan. 
In addition, LG Chem bought up to 100,000 tonnes of open spec naphtha for H1 January at around Japan market quotes plus $6.00/tonne CFR Korea. 
Taiwan’s Formosa Petrochemical Corp (FPCC) successfully restarted its 1.03m tonne/year No 2 naphtha cracker on 25 November, fuelling the bullish sentiment in the naphtha market. 
Meanwhile, in northeast Asia, there was some concern that high naphtha values were eroding cracker margins to uncompetitive levels. Also, there were some expectations that by the second quarter of 2011 demand for naphtha in Asia could wane amid upcoming cracker shutdowns.