Asia naphtha cracks hit 3-year high on concerns Delta variant will hit refinery runs

Quantum Commodity Intelligence – Fears that refinery runs won't increase later this year is causing naphtha cracks to surge, as petrochemical producers worry the spread of a new variant across Asia will hit mobility and depress refinery throughput at the same time as new crackers come online.

Front month cracks versus cash Brent have climbed to $136.54/mt ($2.29/b), according to Quantum data, up 30% on June's average and the highest level in more than three years according to market sources.

Q4 cracks are also up sharply – 23% on June's average, according to Quantum assessments.

With petrochemical demand steady and economics favouring naphtha over propane as a feedstock in Asia, there are concerns that refinery runs won't increase in line with previous forecasts, market sources said.

"Now with Delta kicking off, mobility is decreasing in Asia and refinery runs won't be rising as expected in this time of year," said one market source, adding that three new petrochemical crackers in South Korea will increase naphtha demand at the same time that propane availability slumps.

Many petrochemical producers can switch feedstocks between propane and naphtha depending on the economics.

While India continues to recover from its own wave, Indonesia, Thailand and Malaysia have reported record infections for Covid-19, despite movement restrictions being in place, while Vietnam will go into lockdown for two weeks from Thursday to try to tame the start of its own wave.

Vaccination rates remain low, across southeast Asia at less than 10%, and with jet fuel demand slumping on the week, there are fears refinery runs will be cut.

Other market sources said a heavy turnaround season in July helped keep a lid on cracks, but with reduced supply expected from Europe due to higher LPG prices, cracks remain in an upward trend due to lower stocks in the US.