The naphtha market has been resilient and strong into the end of October with the dips bought into well and the strong gasnaph selling flows supporting the complex further. It will be interesting to see how this strength will be maintained in November. Fundamentally, we are seeing the focus on the crackers, which are due to start up in the New Year, but will this sustain buying for another month? There have been good spread bids into the end of October, but this has been less apparent in November.
The Dec’24 NWE naphtha crack rose from -$2.90/bbl on Oct 22 to over -$1.50/bbl on 31 Oct, then fell to -$2.60/bbl on 5 Nov. There has been a great improvement in open interest in Dec’24. The 7-day trading split is now balanced, with the 3.8mb addition of interest in the fortnight, showing this better buying. Trade houses have been net sellers in the week, adding to their overall net short position in the prompt Euro crack.
The naphtha East/West (MOPJ vs NWE naphtha) saw net selling this fortnight. The Dec’24 East/West naphtha differential saw strong net selling from trade houses, peaking at 920kb on Oct 30, with their overall Dec’24 positioning at 1.9mb short. The prompt E/W differential fell from $22.00/mt on Oct 24 to $20.25/mt on 4 Nov, then rose to $21.00/mt on Nov 5. The rolling M1 E/W contract is currently at its highest level recorded for this time of year. The Dec/Jan’25 MOPJ spread hit $7.00/mt on 31 Oct, then fell to $6.00/mt on 5 Nov. This fortnight, trade houses, net sellers hold a 2.6mb net long in Dec/Jan’25, with the largest net length for MOPJ spreads in Mar/Apr’25 at 3.6mb.
The M1 TC5 freight (from the Middle East to Asia) has seen huge, sustained pressure in the past two weeks. The M1 contract has fallen by over 15% in the past two weeks and over 6% over the past week to $33.60/mt on 4 Nov. This has been seen down the curve and the weak freight worldwide is clear in the TC5 route as the spot price for the LR is now close to the Bal-Nov’24 contract for the FFA. We may see some relief in the freight structure, which may alleviate some pressure on the E/W, although the recent support in MOPJ MOC may support the differential if continued.
The Thai-invested Long Son Petrochemicals complex in southern Vietnam has suspended operation since mid-October, two weeks after its commercial launch. Launched on 30 Sep, the complex can produce 1.35 million mt of olefins and 1.4 million mt of polyolefin annually. SCG plans an additional $700 million investment to use US-imported ethane for cost reduction. The facility aims for $1.5 billion in annual revenue and will potentially generate 1,000 jobs, with contractors hiring an additional 800 workers, including locals.
Iran plans to invest over $40 billion in petrochemicals as part of its eighth National Development Plan to expand and complete its value chain. Currently holding 2.8% of global and 28% of regional petrochemical capacity, Iran aims to increase its capacity to 103 million tons by March 2025. With 60 projects set for the seventh plan, capacity is expected to reach over 130 million mt by 2027, requiring $7 billion annually in joint government and industry investment to meet these goals.
Q1’25 NWE and Asian refinery margins rose, driven by stronger gasoil prices, peaking at $4.67/bbl and $7.55/bbl on Oct 31 before correcting lower in early November. Gasoil cracks rallied due to prompt tightness and short covering, with futures spreads shifting from contango to backwardation. Both margins and naphtha cracks peaked on Oct 31 before declining, while HSFO cracks saw a rapid sell-off as participants unwound positions in 3.5% and 380 spreads.
