Stabilised Naphtha Prices in China Contrasted by Increases in Japan and South Korea

Naphtha prices in China stabilized amidst reduced demand and lower refinery output despite maintenance turnarounds and rebound in crude prices. In contrast, prices in Japan and South Korea rose by 4.3% due to currency depreciation, increased propylene demand, and optimistic market outlook, driven by high bidding activities and inventory restocking.

The prices of Naphtha in the Chinese market have stabilized following a decline in the previous week, reflecting a steadied demand. This comes as a result of decreased manufacturing activities due to a drop in domestic demand for Naphtha. Data from the National Bureau of Statistics (NBS) indicates that China's crude oil refinery output fell in May. This decline was primarily attributed to planned and unplanned maintenance outages, along with reduced processing rates driven by higher crude oil prices and lower profit margins. Chinese refineries processed 60.5 million tonnes during this period. Weak consumption in China has kept consumer prices from rising significantly despite multiple rounds of economic support measures, as confidence remains low amidst a prolonged crisis in the property sector. Economists suggest that a further round of robust and coordinated fiscal and monetary stimulus is necessary to sustainably boost demand.

In contrast, Naphtha prices in the Japanese and South Korean markets have increased by 4.3%. In South Korea, prices rose from USD 654/MT to USD 682/MT during the second week of June 2024. This increase is due depreciation in the value of both countries' currencies, which has led to higher commodity prices, as well as a rise in demand from the downstream market for propylene in the Asian market. Additionally, oil prices surged to their highest levels in over a month, building on last week's gains as investors grew more optimistic about the demand outlook. High bidding activities for Naphtha by buyers and sellers, following a pause due to geopolitical tensions, have also contributed to the price increase. Sellers are keen to restock inventories in anticipation of future demand. The accumulation of margins by buyers has led to higher Naphtha prices in Japan and South Korea, indicating strong buyer enthusiasm. This has resulted in a surplus in the demand-to-supply ratio for Naphtha.

According to ChemAnalyst Asia, future gains in Asia's Naphtha markets, driven by rising oil prices, may get supported by the ongoing high demand from the downstream sectors that utilize Naphtha. Furthermore, due to low inventory levels and subdued demand for Naphtha and related commodities such as ethylene and propylene, prices are anticipated to increase. It is also expected that Naphtha margins in the Asia-Pacific region will decline as prices continue to rise amidst geopolitical disruptions. Traders have already increased market activities in response to these factors, and this trend is projected to persist in the short term.