UAE - Adnoc seeks to cut term naphtha delivery to 3 months
Dated- 03 Aug , 2010 - United Arab Emirates
Abu Dhabi National Oil Co (Adnoc) is seeking to shorten its term naphtha delivery period to three from 12 months starting October, but buyers considered its price offers too high in an oversupplied market, traders said yesterday.
The state-owned refiner pegged its splitter naphtha premium at $11.50 a tonne to its own formula on a free-on-board (FOB) basis, and the paraffinic grade at $12.50 a tonne FOB for the new October term supplies.
“Adnoc is looking to sell around 1mn tonnes of naphtha for October 2010 to September 2011 delivery, but they are facing high supplies because several of the buyers had either previously cut their term volumes or dropped their contracts for other delivery periods,” said a trader. “With all these high supplies in the market, it really does not make sense for them to insist on high premiums.”
Though the latest offers are half those for the July 2010 to June 2011 contracts, buyers still deemed the levels too steep amid the glut in Asia while demand is capped by an outage at Asia’s top spot naphtha buyer, Formosa Petrochemical in Taiwan.
Apart from South Korea, demand in Japan is also weak.
“Adnoc had initially come out with even higher offers (for the October term), but had reduced them as they didn’t find many takers,” said a Middle-East based trader. “Customers are probably not comfortable paying the high premiums for one full-year.”
Cutting the period to three months without reducing the premiums made it more difficult for buyers to agree, as traders did not expect the market to improve for the rest of the year.
“Cracks rebounded last week, but have fallen again these two days,” a Singapore-based trader said. “Fundamentals are still weak, and there are more downside than upside in the market.”
Adnoc aims to dispose off the huge backlog of supplies within the shortest period as most of their Asian term customers had either reduced, or scrapped, their term contracts in recent months due to high premiums offered.
“Adnoc will likely redistribute the 1mn tonnes meant for October-September term into its other contracts or as spot parcels,” said a North Asian trader.
Adnoc traditionally has three yearly contracts, spanning January-December, April-March and July-June.
The refiner added the October contract only this year due to additional naphtha supplies after it started up a liquefied natural gas (LNG) train this year.
Traders estimated that Adnoc has an addition of around 150,000 tonnes a month of splitter naphtha and some 100,000 tonnes a month of paraffinic grade.