The Asian naphtha industry gathered Thursday for the start of the 22nd CFR Far East Open Specification Naphtha Meeting to debate among other things a recommendation that seeks to widen the scope of naphtha cargo origins for inclusion in an Open Specification Naphtha contract clause that requires the first seller to test and report on levels of carbon disulphide in the cargoes.
The annual meeting, which was held over Thursday and Friday in Singapore and is attended by suppliers, end-users and traders, takes stock of and revisits issues pertinent to the Open Specification Naphtha Contract.
A panel of committee members, drawn from the industry, usually proposes the agenda that is debated during the meeting and further feedback is collected after the event.
As any amendment to the contract can affect North Asian naphtha participants to varying degrees, proposals for any changes can go through several rounds of debate before it becomes part of the Contract.
At the moment, clause 2.1 (C) (i) in the Open Specification Naphtha contract -- which requires that first the seller test and report on CS2 levels and provide that information upon nomination or as soon as it has been obtained -- only applies to cargoes loading from Sikka, India.
During the meeting, however, a representative speaking on behalf of the Japanese industry, proposed that the clause be also applied to cargoes originating from Papua New Guinea, Russia, Europe and all commercial tanks, due to growing incidents of high levels of CS2 being found in cargoes originating from these regions.
"In the past, only Sikka [naphtha] cargoes seemed to contain high levels of CS2, but now we are seeing high CS2 content in [naphtha cargoes] from origins other than Sikka," the representative said.
"We need to apply this clause to cargoes from these origins due to the high CS2 levels, which can cause trouble to end-user operations," a panel member said Thursday, adding that when Japanese petrochemical companies are awarded such cargoes, "they need to consider how to manage it."
Naphtha cargoes high in CS2 levels are of particular concern to Japanese petrochemical end-users because it can result in the production of off-spec C5 derivatives when processed in a steam cracker. This affects production quality downstream, such as of synthetic rubber, causing concern among Japanese petrochemical producers who have contracts to supply C5 derivatives. In addition, the high CS2 levels can also cause permanent catalyst poisoning in a BTX extraction unit.
A majority of Taiwanese and South Korean petrochemical producers are, however, not affected to the same extent as their Japanese counterparts as they do not have as many C5 derivative buyers.
While naphtha cargoes for delivery into the Japanese market should ideally only have a maximum CS2 content of 1 ppm, end-user analysis supplied at the meeting revealed that these origin-specific cargoes had CS2 levels ranging from 5-28 ppm.
While there was recognition that the issue was causing a significant degree of difficulty to Japanese petrochemical end-users, the Asian naphtha industry was concerned that applying the clause for CS2 testing and reporting to a wider market could affect liquidity. In addition, logistical and cost issues were raised during the meeting.
"Other factors to consider include the availability of CS2 testing at labs -- not all labs test for CS2 and those that do are based in Fujairah, Singapore or at Reliance's own labs, which will involve courier [for the transport of lab samples] and testing costs," a panel member said Thursday. "The practicality and availability of labs, and the cost of doing such a test have to be considered as well," he added.
"It's obviously an issue that needs to be addressed, as it's an important one for Japanese end-users, and we will talk about it if we should have a proposal that includes a reporting and testing component ... this will be a matter of further discussion for the panel," another panel member said.
Panel members at this year's meeting were representatives from Japan's Showa Denko, Mitsubishi Chemical Corporation, Mitsubishi Corporation, Marubeni Corporation; South Korea's Lotte Chemical and Daelim Corporation; and Western trading companies Vitol, Sietco and Glencore.
