Asia’s LPG Cracking to Fall in August on Higher Naphtha Demand: OPIS Poll

Asia’s flexible crackers are set to reduce LPG cracking in August as operators pivot toward naphtha as their primary feedstock and curb run rates, the latest monthly OPIS cracking survey concluded on Monday shows.

Crackers capable of processing both naphtha and LPG plan to crack 391,800 metric tons of LPG in August, down 13.1% from a revised July plan of 451,000 mt. This includes 249,000 mt of propane and 142,800 mt of butane, down from 276,000 mt and 175,000 mt, respectively, in July.

The July plan was revised higher from an earlier forecast of 435,000 mt. Actual LPG cracking in June stood at 482,000 mt, slightly below the initial plan of 483,200 mt.

Northeast Asia naphtha cracking cash margins remained negative, at minus $119/mt in the week ending June 26, versus minus $186/mt a week earlier, according to Chemical Market Analytics by OPIS.

The CFR Japan naphtha averaged $591.18/mt in June, up from $565.49/mt in May, while the CFR Japan propane averaged $553/mt, rising from $532/mt in May, OPIS data shows.

Sources attributed the August decline in LPG cracking to a narrowing spread between the Far East LPG quotes and Japan naphtha prices. With LPG only marginally cheaper than naphtha, operators are incentivized to crack more naphtha due to its broader downstream product yield, despite slightly higher feedstock costs, sources said.

“The spread for forward months was already narrowing in mid-June, but after the Israel-Iran ceasefire, it tightened further as naphtha prices dropped more sharply than LPG, closing the gap,” one analyst said.

Following the June 23 ceasefire, the spread narrowed to minus $27.27/mt the next day, down from minus $42.50/mt, moving further away from the minus $50/mt threshold — typically the point at which crackers shift to LPG, OPIS data shows.

Naphtha demand rose post-ceasefire, with operators rushing to secure cheaper August-delivery cargoes, reducing demand for LPG. OPIS data shows 13 spot tenders for naphtha were issued after the ceasefire, 11 of which targeted August delivery.

Lower operating rates across Asian crackers have also contributed to reduced LPG demand. One East Asian operator reported capping utilization at 60% across its crackers. A South Korean operator said average rates at its three crackers were capped at 78%, while other units in the country were operating around 80%.

South Korean crackers plan to consume 209,000 mt of propane and 88,000 mt of butane in August, down from 226,000 mt and 134,000 mt in July. July’s planned volumes were also slightly below June’s actual cracking volumes of 227,000 mt of propane and 134,000 mt of butane.

In Japan, where butane is the preferred alternate feedstock, planned cracking volumes for August are 14,800 mt, down from 21,000 mt in both July and June.

The slight upward revision in July’s cracking plan versus earlier forecasts was due to some operators securing cheaper LPG cargoes via private negotiations following the ceasefire. CFR Japan LPG flat prices dropped by $35/mt to $557/mt on June 24 and have remained below $550/mt since, OPIS assessments show. This gave some margin relief and prompted some operators to make purchases.

As of July 7, spot CFR Japan naphtha and LPG were assessed at $577/mt and $541/mt, respectively, both higher month-on-month from $561/mt for naphtha and $531/mt for LPG, OPIS data shows.

Spot ethylene prices in Northeast Asia were assessed at $840-860/mt for CFR Northeast Asia as of July 3, unchanged from late June, based on CMA data.

Methodology: OPIS, a Dow Jones company, collects Asia-based petrochemical companies’ feedstock consumption plans for the current and next month, as well as actual consumption in the previous month. OPIS contacts feedstock procurement officers for the survey by phone, email or messages in the last week of the previous month or the first week of the current month. OPIS may use proxy data based on the best market information available for minor missing entries due to non-response by a stipulated deadline. Such proxies should not alter the overall trend or deviate from the general behaviors of most participants.

–Reporting by Cheryl Lee, clee@opisnet.com and Yiwen Ju, yju@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com