The naphtha market has struggled over the past two weeks, with poor performance observed across both European and Asian complexes. We saw flows primarily skewed towards the sell-side, with trade houses and refiners being key sellers in the NWE crack and the E/W naphtha differential. However, a surge in trade house buying activity in the front-month NWE spread has emerged, despite recent weakness. It remains to be seen if this buying will persist and whether it can provide much-needed support for prompt NWE naphtha in the coming weeks. Adding to this dynamic, the second half of 2024 brings anticipated cracker closures in Europe and startups in China, suggesting weaker demand in the West as demand potentially strengthens in the East.
The Dec’24 NWE naphtha crack declined from -$2.45/bbl on 05 Nov down to -$4.20/bbl at the time of writing on 19 Nov. We saw a particularly large sell-off on 14 Nov, where prices fell by around $1.25 down to an intraday low of -$3.90/bbl. Over the two weeks, trade houses built a 4.4mb short position, shifting the overall Dec’24 long:short ratio to 40:60.
The naphtha East/West (MOPJ vs NWE naphtha) saw strong selling flows, with trade houses increasing their short position from 1.3mb to 1.9mb between 08 and 18 Nov, alongside 336kb of selling from refiners and majors/NOCs. Since early November, the Dec’24 East/West has declined from $21/mt to $18.50/mt, with a current 7 day long:short split of 45:55 for Dec’24.
The M1 TC5 freight (from the Middle East to Asia) has continued on its downward trajectory with significant momentum in the past two weeks, seeing a steep drop off from $33/mt on 4 Nov down to $29.75/mt on 6 Nov. However, we saw some marginal support thereafter, recovering to $30.25/mt by 18 Nov. Weakness was seen down the curve in M2 and Q1’25 tenors, but was less pronounced as these contracts found a floor at $31.65/mt and $30.80/mt, respectively.
Saudi energy giant Aramco, in collaboration with Fujian Petrochemical Co. has launched the construction of a refinery and petrochemical complex in Fujian province China. The project is scheduled to be fully operational by 2030 and include a 1.5 MT per year ethylene unit and 2 MT paraxylene unit. In addition, the new facility is expected to supply around 5 MT of feedstock to the Gulei Petrochemcial Base. Aramco’s downstream president Mohammed Al Qahtani said on the matter, “we intend to direct more of our crude toward helping meet rising global petrochemicals demand” while “building on our strong relationships with both Sinopec and Fujian Petrochemical”.
Meanwhile, China’s newest refiner Shandong Yulong Petrochemical is operating its 200kb/d crude unit in Yantai at 90% capacity and aims to start trial runs at a second unit of the same size in January, as per Reuters. As of 12 Nov, Yulong Petrochemical is currently processing approximately 182kb/d of crude at its No.2 crude distillation unit, and is projected to start up a 1.5 MT per year ethylene unit, although a date for first production is yet to be announced.
