Asian Naphtha market further weakens on the back of the Russian imports

Even though an exclusion clause in many purchase contracts brought on by sanctions against Russia has caused logistical challenges and financial problems, exports of Russian-origin Naphtha to Asia resumed in July 2022. The delivery of cargoes that were refined, produced, manufactured, processed in, exported from, or made through a blending process that used materials or components that had been refined, produced, manufactured, processed in, and shipped from, the Russian Federation, Crimea, the Donetsk People’s Republic, or the Luhansk People’s Republic in Ukraine was prohibited under the 2022 open-specification naphtha (OSN) contract. Before the invasion of Ukraine by Russia started, Russian exports to Asian countries consisted mainly of heavy full-range Naphtha and very few portions of cracker feed ready, light Naphtha.

As of the week ending 22nd July 2022, in the Indian domestic market, Naphtha prices have fallen by 1.8% on a weekly basis. A similar trend has been observed in China, where Naphtha prices have declined by more than 1% on week-on-week basis.

The demand for Naphtha is dull across various markets in Asia. Meanwhile, Russia-originated Naphtha has entered the Asian market as Europe remains closed to Russian commodities amid sanctions. Material availability has been ample in the Asian market while demand from downstream remains on the weaker side. Asian refineries are running at a lower rate, and operators with more than one unit are shutting down units to improve profits and run rates in other units. Market mood has been negatively impacted by low downstream margins and worries about new COVID-19 lockdowns in China, a significant user of petrochemicals. Even if overall arbitrage volumes have increased since the end of the spring turnaround season at North Asia’s naphtha-fed steam crackers, sources said demand was not anticipated to improve much.

As per ChemAnalyst, “the weak market sentiments for Naphtha in the Asian market are further worsened by the supply of Russian-origin Naphtha despite the ban on purchasing Russian Naphtha by OSN . Few Asian markets avoided Russian Naphtha during the start of Moscow’s invasion of Ukraine but have started importing during July. The price of Naphtha in the Asian markets will likely continue the downward price trend owing to the existing poor demand and the start of importing Russian Naphtha.”