Weak Chinese Market Drives Down Naphtha Prices in Asia Pacific

Singapore: Naphtha prices in the Asian markets are decreasing owing to poor demand for downstream petrochemical products like Ethylene and Propylene in the Asian region, especially in the Northeast Asian market, where the demand is further weakening on the back of recent covid 19-related restrictions in some major areas of China.

Although downstream propane dehydrogenation plants, which have been witnessing negative margins since fourth-quarter 2021, are easing as import costs of propane feedstock have fallen by a quarter during August from the peak in March, traders said that China's petrochemical sector is expected to struggle under operating losses, at least through the third quarter. In order to help reduce surplus Polypropylene (PP) stocks in important producers like South Korea, other North Asian Naphtha cracker operators, who have also been struggling with low olefin margins, are waiting for a revival in propylene demand in China and other Asian consumers.

Since the need for Naphtha is decreasing in Asian regions, crackers will need to reduce run rates from September to October, according to a source at a cracker in North Asia. To cut losses, "either that or move up their maintenance plan." Due to sluggish economic growth, domestic demand for olefins in China, South Korea, and Taiwan has remained low. The sources stated that crackers are trying to export their output, but high freight costs and weak international demand prevent them from doing so.

According to ChemAnalyst, the rebound of the Naphtha market is not to be expected in a short time since it is a global situation. Even with declining Naphtha prices, market insiders predict that the gloomy mood will continue till the end of 2022. Any impending recovery will be heavily reliant on olefin prices and China's economic recovery.