Tuesday, Oct 02, 2007
By Seng Li Peng
Of DOW JONES NEWSWIRES
SINGAPORE (Dow Jones)--Asia's stubborn naphtha glut will put some pressure on Kuwait Petroleum Corp.'s term talks starting Oct. 22 in London, traders said Tuesday.
Back in June, when supplies were tight, KPC managed to raise its August 2007 to July 2008 premium by $5 compared with its April 2007 to March 2008 premium to $21 a metric ton to the Persian Gulf mean on a free-on-board basis.
"But it's a buyer's market right now, and I don't foresee the glut in Asia easing at least in the next two months," said an Asian trader whose company decided against renewing a term contract with KPC earlier due to perceived high offers.
For a start, traders expect India to continue exporting an average of 700,000-800,000 tons of naphtha a month into Asia, up from less than 500,000 tons a month between January and March.
The high volume of exports from India are due to a combination of factors.
This includes Essar Oil Ltd.'s refinery expansion to 210,000 barrels a day from 150,000 barrels a day currently and weaker domestic demand as Indian end-users opt for natural gas over more expensive naphtha.
Essar Oil is still in the midst of its expansion program, which is expected to end by December this year.
In addition, India may cut its naphtha export volume when it switches its gasoline specifications to meet Euro III standards, said an Indian naphtha trader.
"But from now until next year, I expect India to maintain its current export volume," he added.
High Refinery Runs, Exports From Saudi Arabia Add To Glut
Meanwhile, high refinery runs in Japan and South Korea have also added to the surplus supply woes, traders said, while discounts on naphtha spot cargoes have been widening since June.
For instance, South Korea's Yeochun NCC last Friday bought 25,000 tons of open-specification naphtha for first-half November at a discount of $9-$10/ton to the Japan mean on a cost-and-freight basis compared with LG Petrochemical's purchase in early June of a parcel of the same size and grade for second-half July arrival at only a "slight discount" to the Japan mean, C&F basis.
Saudi Arabian Oil Co.'s general lack of success in selling its October 2007 to March 2008 A180 light naphtha at a $16/ton premium to its own formula after more than two weeks' of discussions will also affect KPC's term talks.
However, Saudi Aramco managed to sell its A310 and Rabigh full-range naphtha for October 2007 to March 2008 loading from the Middle East, but at lower premiums of $12/ton and $14/ton to its own formula respectively, down $7.50-$8.50/ton compared with its July-December 2007 premiums.
Given these bearish factors, "I think $10-$11/ton (to the Persian Gulf mean, FOB) would be a reasonable premium for KPC's upcoming discussions," said a trader whose company will be involved in KPC's talks in London.
But a person familiar with KPC's deals said it's not always fundamentals alone that will dictate price direction, "it's also the relationship between the buyer and the seller."
He added that KPC is including some "new players," or first-time customers, in the December 2007 to November 2008 term talks, but some traders were unmoved by the decision. "They may bring in new customers, but they have also lost some in the past," said another trader.
KPC usually exports around 7 million to 7.5 million tons of naphtha a year and holds three rounds of term talks.
Each of the talks usually lasts for a week, and the latest talks are expected to end Oct. 29.
KPC is the second largest naphtha supplier to Asia after Saudi Aramco.
KPC's Naphtha Settlements (in $ metric ton)
Time Frame Price To Persian Gulf Mean
August 2007-July 2008 +21.00
April 2007-March 2008 +16.00
December 2006-November 2007 +6.75
August 2006-July 2007 +17.50
April 2006-March 2007 +16.50
December 2005-November 2006 +14.50
-By Seng Li Peng, Dow Jones Newswires; 65-6415-4067; li-peng.seng@dowjones.com
(END) Dow Jones Newswires
02-10-07 1014GMT
