April 16, 2017 4:00 pm JST

India exporting more naphtha to Asia

Resulting glut likely to push Japan's import prices lower

TOKYO -- India is boosting naphtha exports to Japan and other Asian markets, fueling concerns of an oversupply in the region.

Japanese general trading companies are reporting that India exported around 895,000 tons of naphtha to East Asia in March, 60-80% more than in February. March naphtha exports from Europe also appear to have grown around 10% from the prior month.

"One cause of the increase in Asian exports is sluggish gasoline demand in India," explains Kenta Kato, head of Mitsui & Co.'s petroleum business office. Naphtha is used for some gasoline, so slowing Indian gasoline demand generates naphtha surpluses.

Accompanying strong economic growth, India's gasoline demand hit record highs in 2016. However, economic activity has slowed since the government banned large currency notes. As a result, demand for gasoline, consumption of which tends to closely follow economic trends, has fallen, so refiners have been turning out and exporting more naphtha. A major trading house also points out that petroleum companies stepped up naphtha exports to Asia to lighten inventories prior to the end of the fiscal year in March.

In Europe, a drop in the price of liquefied petroleum gas, a competing petrochemical feedstock, has led to a rise in naphtha exports. Lower LPG prices have made naphtha relatively less attractive, prompting petrochemical companies to revert to LPG usage and ship more naphtha abroad.

Growth in exports from both India and Europe has left Asia awash in naphtha. One indicator of the supply-demand balance is the spread against North Sea Brent crude oil, with a large price difference suggesting a shortage of naphtha and a small difference indicating a glut.

The price difference between naphtha and Brent crude averaged around $75 a ton in March. Naphtha was 19% more expensive than crude, a smaller premium than the 23% difference seen in January and February.

Looking ahead, refineries in Japan and other parts of Asia are due to complete regular maintenance shutdowns and return to full operation in April and May, raising the possibility of an even larger glut heading into June.

Japan's petrochemical companies have cited high crude oil and naphtha prices as a reason to push for price hikes on synthetic resins. If an oversupply causes naphtha prices to fall, naphtha import prices will also be pushed lower, potentially making for rough going in petrochemical producers' price hike negotiations.

(Nikkei)

Mitsui & Co., Ltd.

Japan

Market(Ticker): TKS(8031)
Sector:
Industry:
Distribution Services
Wholesale Distributors
Market cap(USD): 24,321.6M
Shares: 1,796.51M

Get Insights on Asia In Your Inbox

To read the full story, Subscribe or Log in

Get your first month for $0.99

Redeemable only through the Subscribe button below

Once subscribed, you can…

  • Read all stories with unlimited access (5 articles per month without subscription)
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.

To read the full story, Subscribe or Log in

Once subscribed, you can…

  • Read all stories with unlimited access (5 articles per month without subscription)
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.