Asia’s Benzene-Naphtha Spread Slumps to Three-Month Low as Crude Retreats, Feedstock Costs Rise
The Asian benzene-to-naphtha spread narrowed to below $150 per metric ton on Thursday, heading into the red for the first time since Aug. 11, as a sharp decline in benzene prices and elevated naphtha costs eroded aromatics production margins despite tight regional supply.
The spread, a key indicator of benzene production profitability, plunged 55.5% from a two-year high of $317.50/mt on Sept. 29 to $141.25/mt on Oct. 29, its lowest level in nearly three months, according to OPIS data.
The sharp contraction reflected diverging price movements between benzene and naphtha, with the former retreating amid easing geopolitical risk premiums while the latter remained supported by elevated freight costs and concerns over Middle Eastern supply.
Asia’s benzene prices plunged on Thursday, tracking a decline in crude oil futures as traders assessed renewed diplomatic efforts in the Middle East aimed at averting a potential resumption of U.S. military strikes on Iran.
The developments eased concerns over further disruptions to regional crude oil supplies, prompting a retreat in energy prices after weeks of heightened geopolitical uncertainty.
Benchmark Brent December futures slipped below $114 per barrel on Thursday, reversing some of the risk premium that had supported crude oil and downstream petrochemical markets.
The midpoint of the OPIS FOB Korea benzene assessment fell 4.5% over two trading sessions, declining from $1,242.50/mt FOB Korea on Tuesday to $1,186/mt FOB Korea on Thursday.
The correction came despite persistently tight regional benzene availability, supported by extensive maintenance among South Korean producers and firm Chinese import demand.
Elevated Freight Costs Support Naphtha Values
In contrast, Asia’s naphtha prices rose sharply throughout October, supported largely by higher freight costs and concerns over supply from the Arabian Gulf rather than a significant tightening in underlying market fundamentals.
The midpoint of the OPIS naphtha assessment rose from $907.88/mt CFR Japan on Oct. 1 to a four-month high of $1,060.25/mt CFR Japan on Oct. 27, representing a 16.8% increase.
Prices subsequently eased to $1,049.75/mt CFR Japan on Thursday, remaining 15.6% above the beginning-of-month level.
Elevated freight rates have increased the cost of transporting naphtha into Asia, supporting the naphtha values while reducing the competitiveness of arbitrage cargoes from alternative supply regions, according to market sources.
Concerns over potential supply disruptions from the Arabian Gulf have also contributed to the strength in naphtha prices, although actual October arrivals increased, suggesting that freight-related pressures have played a more prominent role in the rally than a deterioration in physical availability.
The resilience in naphtha values, even as benzene prices weakened, has significantly compressed the benzene-to-naphtha differential, raising concerns over aromatics production profitability.
South Korean Turnarounds Restrict Benzene Supply
The deterioration in margins comes despite substantial benzene production losses in South Korea, a key exporter to the broader Asian market, as multiple producers undertake scheduled maintenance during October and November.
Korea Petrochemical Industries Co. shut its 160,000 mt/year benzene unit in October, with operations expected to resume in early November. The shutdown is estimated to result in approximately 17,000 mt of lost production.
LG Chem‘s 220,000 mt/year benzene unit was taken offline in mid-October for maintenance extending into November, resulting in an estimated production loss of 31,000 mt. Its three other benzene units, with a combined capacity of 586,000 mt/year, remain operational.
SK Geo Centric Co. also shut a 140,000 mt/year benzene unit for maintenance spanning October and November, with production losses estimated at 15,000 mt. The company’s four other benzene units, totaling 555,000 mt/year, continue operating.
Meanwhile, SK Incheon Petrochem Co. shut all four of its benzene units, with a combined capacity of 565,000 mt/year, for maintenance from October through mid-November, resulting in an estimated production loss of 70,000 mt.
Yeochun NCC Co.’s 160,000 mt/year benzene unit has been offline since September, with its restart scheduled for the second half of November. The outage is estimated to result in 27,000 mt of lost production across October and November, while its other 190,000 mt/year benzene unit remains operational.
Combined production losses from the five maintenance programs are estimated at approximately 160,000 mt across their respective shutdown periods, further constraining regional spot availability.
China’s Import Demand Remains Firm
Regional benzene supply has also been tightened by an open Asia-to-U.S. arbitrage window, which has encouraged cargo movements toward the US market, while strong Chinese demand has supported regional export values.
Persistently low commercial benzene inventories in East China have driven domestic prices higher in recent weeks, widening the differential between Chinese domestic and regional cargo values and supporting demand for imported material.
In the import market, spot negotiations remained active, with December-loading benzene cargoes discussed at premiums of approximately $70/mt over FOB South Korea levels.
The sustained import interest has provided underlying support to regional benzene trade despite the recent correction in upstream energy prices.
Nevertheless, the sharp narrowing of the benzene-to-naphtha spread highlights the growing pressure on aromatics production economics as elevated feedstock costs increasingly outweigh the price support from tight physical benzene supply.
–Reporting by Hazel Kumari, hazel.kumari@dowjones.com; Editing by Mei-Hwen Wong, mei-hwen.wong@dowjones.com