* Asia to be hit by at least 200,000 T of surplus naphtha in
* Spot prices still pressured after flipping to discounts in
* Naphtha market to stay weak at least until Sept, winter
By Seng Li Peng
SINGAPORE, July 17 (Reuters) - Asia is being hit with a
naphtha supply glut that could push the market down further,
after spot prices in South Korea already flipped from premiums
to discounts in late June for the first time since March.
Discounts in South Korea, Asia's top naphtha importer,
widened four times - to $4 a tonne less than benchmark Japan
quotes on July 13 - versus a discount of around $1 on June 28.
Naphtha's front-month outright price for second-half August
physical cargoes on July 14 was $3 a tonne lower than for the
following month, the deepest contango value since mid-October
2016. The contango weakened to $2 on Monday. <NAF-TYO-DIF>
In a contango market, prompt deliveries are cheaper than
those further out, indicating ample supply.
"The reason for the naphtha weakness is mainly coming from
weakness in gasoline and more regional production ... exports
from the Middle East have increased compared with last year,"
said Premasish Das of consulting firm IHS.
Naphtha is a key feedstock for petrochemicals and a gasoline
blending component. Asian gasoline demand has mostly been firm,
but uncertain U.S. demand for the motor fuel has meant that
Europe has been directing more of its naphtha volumes to Asia.
Japan and South Korea are also running their refineries at
more than 90 percent of capacities on average, while Chinese
refineries' June throughput was the second highest on record.
Though Asia will remain structurally short of naphtha, the
high run rates mean it will have more of the feedstock from
local refiners than usual.
Middle East's naphtha supplies to Asia are expected to reach
nearly 3.0 million tonnes this month and 2.9 million tonnes in
August, data from Thomson Reuters Oil Research showed, higher
than the 2.8 million-tonne monthly average for January to June.
Additionally, naphtha volumes arriving in Asia next month
from the West, including Europe and the Mediterranean, are
running at 1.3 million tonnes for the third straight month. That
is 18 percent above the monthly average for 2016.
Based on typical Asia demand for naphtha, this means the
region will be hit by at least 200,000 tonnes of surplus supply
next month, industry sources said.
At the same time, demand in Taiwan will take a dive as
Asia's top individual naphtha importer Formosa Petrochemical
Corp will shut the largest of three crackers down for
maintenance from mid-August.
"Prices have not reached bottom ... Until end-September, we
will be struggling hard," said a Singapore-based naphtha trader
who expects as much as 400,000 tonnes of surplus supply.
This will likely keep naphtha margins in the red until
winter, said IHS's Das.
Winter demand for naphtha typically picks up as rival
petrochemical feedstock LPG is used for heating homes.
(Reporting by Seng Li Peng; Editing by Vyas Mohan and Tom
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