S. Korean splitters eye return to condensates as key feed amid costlier naphtha

Singapore — South Korean condensate splitter operators are eyeing a return to use of condensates as key feedstock as naphtha's price advantage eases and poor aromatics margins keep operating rates at reduced levels, market sources told S&P Global Platts on July 28.

"Splitter operators are considering using more condensates and not buy full-range naphtha as the BTX product chain margin is quite bad, and condensate prices are more competitive to Mean of Platts Japan naphtha," said an end-user source.

Hanwha Total's naphtha purchase has been falling, with the company being absent from the naphtha spot market since end-June.

"Now condensate economics should be better than naphtha as naphtha parcels are too expensive," said a source at the company.

Hanwha Total's last purchase of spot full-range naphtha was for a 25,000-mt cargo a month ago for first-half August delivery, according to spot tenders seen by Platts.

The condensate splitter operator purchased at least 175,000 mt of heavy full-range naphtha via tenders for July delivery, lower than the 325,000 mt purchased for June delivery, S&P Global Platts earlier reported.

The lower naphtha purchase was partly due to a reduction in operating rates at its condensate splitters to around 80% of capacity due to weak aromatics margins, a company source said. Hanwha Total plans to run its splitters at 80% through August, the source added.

Few purchases of splitter-grade naphtha were heard, which market sources said was due to low splitter run rates.

South Korea's SK Energy, who is a typical buyer of full-range naphtha, was heard to have offered 25,000 mt of full-range naphtha in a tender on July 19, however further details were unknown.

Market sources said most splitters in Asia were operating at around 80% capacity due to poor margins, particularly due to an underperforming aromatics segment.

The spread between physical CFR Taiwan/China paraxylene marker and CFR Japan naphtha was at $151.045/mt at the Asian close July 27, down $1.33/mt day on day, remaining below the typical breakeven of around $280-$300/mt, and has been below the $300/mt mark since March 19, Platts data showed.

Tepid demand for full-range naphtha from splitter operators has led to it being valued at a discount to open-spec naphtha with minimum 70% paraffin content as the latter is witnessing strong demand with

Asian steam crackers mostly operating at full capacity due to lucrative olefins margins, sources said.

CONDENSATES CHEAPER THAN NAPHTHA

South Korean condensate splitter operators bought Qatari condensates and Australian North West Shelf condensate for August loading, September delivery, sources said.

August loading Qatari low-sulfur and deodorized field condensate were sold to South Korean end-users at a discount of around minus $1.75/b and minus $1.65/b to Platts Dubai on a FOB basis, traders said.

This equates to around $39.16/b or $335.21/mt using a conversion factor of 8.56, with August Dubai assessed at $40.86/b on June 30 and a cash differential of minus $1.70/b.

The cargo on a delivered basis is around $343.16/mt, with a freight rate of $7.95/mt for a Persian Gulf to South Korea voyage on a VLCC.

In comparison, August MOPJ naphtha averaged $383.125/mt over July 1-27, added to a CFR Korea cash differential of around plus $12.50/mt, CFR Korea naphtha for September delivery is around $395.625/mt, reflecting a premium over condensates.

Other Australian condensates were also snapped up by South Korean buyers.

A 650,000-barrel cargo of Australia's North West Shelf condensate loading August 6-10 was sold by Chevron at a discount of around $1/b to Platts Dated Brent on a FOB basis, traders said.

Traders also noted that Australia's Wheatstone condensate were also bought by Korean end-users, with sketchy details.

NAPHTHA HOLDS STEADY

Despite weaker demand for full-range naphtha, steam-cracker grade naphtha with minimum 65% paraffin content assessed by Platts remained well-supported on strong buying interest from steam crackers.

Reflecting the firm naphtha sentiment, CFR Japan naphtha physical crack against front-month ICE Brent crude futures rallied from a five week low of $54.425/mt at the Asian close July 20 to $76.625/mt on July 27, Platts data showed.