Asian naphtha hits 14-year high; olefin production margins turn negative

Asian ethylene and propylene prices extended their gains this week, driven higher by the price spikes in the key naphtha feedstock to the highest in 14 years. Propylene also saw an 8-year high while ethylene reached only its highest since September 2018.

Undoubtedly, the boosted rally both in naphtha and olefins has been a reflection of skyrocketing crude oil prices. May Brent futures hit a peak of $139/bbl on Monday, before easing back in the following days but still seeing big swings in daily tradings.

Spot naphtha prices were reported $130/ton higher on the week at $1146/ton CFR Japan on a weekly average. This indicates the highest levels since July 2008, right before the collapse from the historic peak.

By late February, several major South Korean producers raised cracker operating rates after a three-month period of disciplined rate cuts, as prices of both ethylene and propylene recovered and olefins production became profitable at that time. However, this week, along with the conspicuous jump in naphtha prices, many regional producers said that they are again suffering production losses, and will have to cut cracker and PDH plant run rates as they do not want to produce olefins at negative margins.

As of March 9, spot ethylene prices were assessed at $1360/ton CFR China and at $1350/ton CFR Southeast Asia, suggesting a $80/ton increase from the end of last week. NEA ethylene spot prices are currently at a more-than-3 year high.

Spot propylene prices were assessed at $1260/ton CFR China and at $1310/ton CFR Southeast Asia. FOB South Korea based prices, meanwhile, stood at $1310/ton. NEA propylene spot prices are up $50-80/ton from the end of last week and they are also currently standing at their highest since October 2014, according to ChemOrbis Price Wizard.



Record-high naphtha threatens olefin margins

Olefins producers reiterate that the keys to sustainable olefins supply in the region are stable naphtha feedstock prices and demand recovery. Currently, naphtha prices track the volatility of crude prices, hence it is difficult to manage production levels, as securing naphtha feedstock at an economically feasible cost becomes challenging.

Demand recovery has been seen as there is less supply to meet with the demands of derivative PE, PP, PVC, MEG, styrene, phenol and acetone producers.

“With current naphtha prices at $1150-1160/ton CFR Japan, and adding a production cost of $200/ton, current margins are at negative. With ethylene prices at $1340/ton CFR China/NEA, margins are at minus $10-20/ton. With propylene prices at $1250/ton CFR China/NEA, margins are at minus $100-110/ton, but are slightly better at minus $50-60/ton with prices at $1300/ton CFR SEA. However, producers who require a higher production cost of $250/ton are at steeper negative margins,” said a trader.



Taiwanese and S Korean producers to cut op rates again

Taiwan’s Formosa Petrochemical Corporation (FPCC) plans to reduce the operating rates of its three naphtha steam crackers located at Mailiao to 85% in March from the previous 90-95% in February, according to industry sources.

FPCC owns three naphtha crackers located in Mailiao, that have a combined production capacity of 2.93 million tons/year of ethylene, and 1.465 million tons/year of propylene.

South Korea’s LG Chemical had already raised cracker rates to 85% from 80% because of the ethylene supply shortage, but will likely be cutting rates again. LG Chemical has three crackers located in Yeosu and Daesan, which produce some 3 million tons/year of ethylene.

Ulsan-based producer, Korea Petrochemical Industry Co (KPIC) will also likely cut cracker operating rates to 90%, from 95%. Lotte Chemical is also likely to maintain current operating rates at 90%, or cut to 85% in March, according to traders.