Demand for Western naphtha next month is projected at about 1.7 million to 1.8 million tonnes, according to data from consulting firm IHS, which would more than soak up the new supplies.
But the persistently weak gasoline market would likely prompt traders to sell naphtha rather than use it as a blendstock for petrol because the latter's margins have fallen steeply to go negative Asia and Europe this week, the sources said. [LDIS/A] [PRO/E]
"We expect the naphtha market to be weaker in 2019 (versus 2018), particularly in the first half, mainly due to the lacklustre gasoline market, resulting in lower blending demand and high volumes being shipped from the West to Asia," said Matthew Chew, principal oil analyst at IHS Markit.
The start-up of significant refining capacity in China and Malaysia ahead of the construction of new petrochemical units would also lead to some increase in regional naphtha supply, he said.
Asia is structurally short of naphtha feedstock and is heavily dependent on the Middle East and the West, which includes Europe and the Mediterranean, for supplies.
But high refinery runs globally for most of last year as refiners cashed in on high diesel and jet fuel margins led to an ongoing gasoline glut, which was made worse by some consumers switching to more efficient or green cars.
This has resulted in more naphtha being pushed out of Europe to Asia, where December volumes hit a near three-year high of about 1.9 million tonnes.
Although naphtha spot prices have returned to a premium of between $1 and $3 this week, having been at a discount from late August to December, the current level is well below than the $8 to $10 levels at the same period last year.
"The market may not get any stronger because the lower Western volumes coming to Asia next month have already been priced in," said a trader who has been tracking naphtha for several years.
(Reporting by Seng Li Peng; editing by Richard Pullin)
By Seng Li Peng
