Taiwan's Formosa Petrochemical Corp. is expected to continue using LPG as alternative feedstock at its steam crackers until after November when it will switch to fully using naphtha, an industry source said Friday. The plan comes as prices of propane and butane in Asia had been on steady uptrend since hitting a more than six-month low on October 2, while naphtha has been on a decline since mid-October on concerns over abundant supplies coming in from Europe, traders said.
Formosa had used up to 20% of LPG, in a combination of propane and butane, as an alternative feedstock to naphtha for its three steam crackers since May when LPG prices were at deep discounts to naphtha.
"Formosa will do so after November," the source said, on whether Formosa would fully revert to naphtha as feedstock.
"The company will still have cheap LPG for cracking," he said, adding that Formosa still has stocks of LPG bought in the past months when the price was low.
But the source discounted the possibility of Formosa reselling any of its cheaper stockpiles to the market to take advantage of current higher prices.
Formosa's No. 2 naphtha-fed steam cracker at Mailiao, which is able to produce 1.03 million mt/year of ethylene, 515,000 mt/year of propylene and 162,000 mt/year of butadiene, is scheduled to return from a 45-day turnaround at the end of this month, a source close to the company had said.
Formosa's No. 3 steam cracker -- its largest at Mailiao -- can produce 1.2 million mt/year of ethylene, 600,000 mt/year of propylene and 176,000 mt/year of butadiene, while the No. 1 unit can make 700,000 mt/year of ethylene, 350,000 mt/year of propylene and 109,000 mt/year of butadiene.
Other than Formosa, two of South Korea's petrochemical firms, Yeochun Naphtha Cracking Center and Lotte Chemical, plan to revert to fully using naphtha as feedstock for their steam crackers in second-half November, company sources had said this week.
YNCC is set to stop using butane as feedstock for its No. 1 and No. 2 steam crackers at Yeosu from the middle of November, switching completely to naphtha. Both crackers have been using 10% butane as feedstock since early March.
Lotte Chemical, which has been using up to 10% of butane at its Yeosu steam cracker since mid-October, plans to stop doing so by end-November. Its second steam cracker at Daesan has completely stopped using butane in mid-September. STRONG LPG VERSUS BEARISH NAPHTHA
Many North Asian petrochemical companies had begun switching to LPG as an alternative feedstock around end-February to early-March this year, when the Argus Far East Index propane swap slid into a discount as deep as $108.50/mt versus Mean of Platts Japan naphtha swaps assessment, on February 21. The spread between butane and naphtha was at minus $111.50/mt during the same period.
By March 12, the discount for propane had steepened to $142/mt, while for butane the discount was at $132/mt, the sharpest since May 3 last year, Platts data showed.
But the spread between LPG and naphtha had been narrowing over the past month from minus $85/mt for propane and minus $70/mt for butane on September 19, to plus $11.50/mt for propane and plus $41.50/mt for butane on Thursday, Platts data showed.
Traders said as winter approaches, expectations of ample propane supplies from the US to Asia had not been fully realized as volumes were diverted to Europe.
Even though Middle Eastern producers Saudi Arabia and Qatar have partly filled the supply gap, supplies were said to be limited by cuts in term volumes from Abu Dhabi National Oil Co. and loading delays in Kuwait.
Traders said there was also talk of an outage at a gas separation plant in Saudi Arabia, which limited loadings, though this could not be immediately confirmed.
In contrast, naphtha's previous bullish sentiment has turned bearish as 800,000-900,000 mt of Western arbitrage volumes are expected to arrive in Asia in the first half of December alone, compared with initial projections of 600,000 mt for arrival over the whole of December, traders said.
