Flurry of Europe-Asia naphtha cargoes to perk up Asia LR tanker market: officials

Teekay LR tanker 01 small.jpg

Asian buyers are snapping up naphtha cargoes from Europe to make up for a shortage of cargoes from India and the Middle East, which could temporarily support the Long Range tanker market in the East of Suez region, shipping industry officials said Tuesday.

At least six LR2 vessels have been fixed for loading 80,000 mt each of naphtha in Russia, Italy and Spain over the next two weeks, shipping brokers, owners and charterers across Asia said.

Charterers moving these cargoes include Total, Trafigura, Clearlake and Repsol, according to sources following the matter.

A smaller naphtha cargo of around 38,000 mt has also been contracted by P66 for shipment next week from the US Gulf, though there are other destination options as well, they said.

These trading companies could not be immediately reached for comment but market sources in Asia said shipments from the West are currently economically viable, prompting buyers to capitalize on the opportunity.

The arbitrage window for moving naphtha cargoes from west to east is open and [few] fixtures have been done,” said a Singapore-based chartering executive with a global commodities trading company.

“The West is long on naphtha cargoes. Skikda is up and running again and less naphtha is going into gasoline blending,” another chartering source said.

Algeria’s largest refinery in Skikda was under maintenance and as a result its naphtha exports were affected last month.

These trades come at a time when supplies from the Middle East and India have slowed.

The Mina Abdullah and Yanbu refineries in Kuwait and Saudi Arabia with crude processing capacities of 270,000 b/d and 400,000 b/d respectively are currently undergoing maintenance, according to data collated by S&P Global Platts.

Saudi Arabia’s 550,000 b/d Ras Tanura refinery is scheduled to undergo an outage during December 1-January 17 while Reliance’s 660,000 b/d refinery in Jamnagar will complete maintenance only by early December.

North Asian buyers now need cargoes for end-December and early January deliveries and some of the requirements are being sourced from Tuapse, UST Luga, Milazzo and Cartagena, said a Tokyo-based chartering executive tracking the deals.

It will be more than a month by the time these cargoes are delivered and in the case of the UST Luga to North Asia route, the voyage will be six weeks, the executive said, pointing out that these LR2s are unlikely to add to the tonnage supply in the Middle East until the second half of January.

More importantly, demand for naphtha loadings in Europe and Russia will encourage owners to pick up gasoil and jet fuel cargoes in the Middle East and Red Sea regions, which in turn will position these vessels for trips from West to North Asia.

This will help reduce the East of Suez tonnage supply into the bargain. Hitherto, they have been reluctant to do so due to a dearth of cargoes in Europe for their next voyage.

There are close to 30 LR2s available for loading in the Persian Gulf in the next three weeks, according to shipping industry estimates. The corresponding number of LR1s is even higher at more than 50.

Heavy supply of LRs has been weighing on rates, which are hovering close to their lowest levels for the year. Platts assessed the key Persian Gulf-Japan LR2 rate Monday at w62.5, translating into daily earnings of around $7,400, brokers said. ASIAN NAPHTHA DEMAND

Despite the latest demand, shipping industry executives are skeptical about the medium-term outlook.

“Due to increase in refinery runs and cheaper availability of crude, domestic naphtha production in North Asia has been going up,” an oil industry analyst with an international consultancy said.

According to industry estimates, China’s naphtha imports in August were around 107,000 b/d compared with an average 170,000 b/d during the first eight months of the year.

Naphtha imports into South Korea, the region’s largest importer, declined to 521,000 b/d during January-August from 533,000 b/d a year earlier, the estimates showed. The corresponding decline in Japan is to 448,000 b/d from 486,000 b/d.

Traders forecast that Europe’s sales of naphtha to North Asia may fall by half this this year.

The latest North Asian interest in naphtha from the West is seasonal and can be partly explained by firmer LPG in the run-up to winter in the northern hemisphere, the analyst said.

A chartering source said: “The crackers are using less LPG in east and this means a bit more naphtha is needed.”
Source: Platts