SINGAPORE/NEW DELHI, March 19, (RTRS): India’s exports for April are expected to be lower at 800,000-850,000 tonnes versus about 900,000 tonnes seen for March, which was the highest seen this year, traders said on Friday.
But the lower April volumes, due mainly to Indian Oil Corp (IOC) reducing exports, are unlikely to lift the market, which is under pressure by falling petrochemicals margins due to increased supplies, and end users eyeing to substitute a small portion of their naphtha feedstock with liquefied petroleum gas (LPG).
“What is sustaining the Asian market right now is that there are no Western barrels coming in for May,” said a Northeast Asian trader.
The lack of Western barrels have kept Indian premiums for April parcels at an average of $20.00 a tonne, on a free-on-board (FOB) basis.
So far, Indian refiners including Bharat Petroleum Corp Ltd (BPCL), Oil & Natural Gas Corp (ONGC) and Indian Oil Corp (IOC) have already sold a total of more than 250,000 tonnes of naphtha for April lifting.
IOC was expected to halve its April exports to 120,000 tonnes as it will be diverting cargoes to its naphtha cracker in Panipat.
When at full-tilt, the 800,000 tonnes per year (tpy) cracker will need some 200,000 tonnes of naphtha a month, but the unit will run at 60 percent of capacity during its initial stages.
But IOC currently has an outstanding tender to sell a total of three naphtha cargoes. The tender, which closes next Monday, comprises a 30,000-tonne cargo for April 4-6 loading from Kandla, another 15,000 tonnes for April 5-7 loading from Haldia, and 30,500-31,500 tonnes for April 20-22 lifting from Dahej.
If all three cargoes were to be sold next week, they will bring IOC’s total exports next month to 136,000-138,000 tonnes.
“IOC needs time to ramp up. They have targets to reduce exports, but the actual cuts will be tied to its cracker’s operations,” said a Singapore-based trader.
“My view is that total Indian exports in April will be geared towards the high side, at 850,000 tonnes.”
As for March, the high export levels came as a result of IOC and Reliance having more-than-expected volumes to export.
IOC’s exports for March loading are estimated at 240,000 tonnes versus its original target of 150,000 tonnes.
Reliance had 200,000 tonnes versus earlier estimates at 150,000 tonnes due possibly to higher yield, as its newer, export-oriented refinery in Jamnagar, cranks up run rates which were above 100 percent capacity, traders said.
Other traders said lower domestic naphtha consumption, as fertiliser and power plants switched to cheaper gas feedstock, could have played a role too.
The lower exports from India in April will do little to improve sentiment. Cracks, although still comparatively strong at above $110.00 a tonne, have fallen to $135.75 a tonne premium on Thursday versus a six-week high at $164.03 a tonne on March 3.
There is a nagging concern that values could spiral down at a rapid pace given the additional petrochemical supplies in the market which will outpace demand.
“Petrochemical margins are coming off, although they are still in the black,” said a second Singapore-based trader.
Spot prices of ethylene, made mostly from naphtha in Asia (excluding the Middle East), are currently about $1,180-$1,200 a tonne, on a cost-and-freight (C&F) basis.
“I think if ethylene prices were to fall to $1,050 a tonne, C&F, margins (for naphtha crackers) would start to flip into the red,” said the same trader.
Iran, which uses cheaper gas feedstock, has been pushing out more ethylene exports to Asia in February versus January, and this will likely continue in March.
Shell has yet to start exporting ethylene from its new 800,000-tpy cracker in Singapore, but it is just a matter time, traders said.
The cracker is not 100 percent dependent on naphtha, as it can also use hydrowax and liquefied petroleum gas (LPG).
In Taiwan, Formosa Petrochemical Corp will replace 100,000 tonnes of naphtha with LPG in its 2.93 million tpy cracking complex in April. Formosa is Asia’s top spot naphtha buyer.