Asian naphtha buyers are cool towards Saudi Aramco’s unusual term offers for October 2007-March 2008 supplies, as the premium levels were deemed too high in the current bearish market, industry sources said.
They said this might persuade Aramco to offer more on the spot market, after having sold two 25,000-tonne cargoes of the A-180 grade – at least one of them at a low premium of $5 a ton – before the Middle East oil giant offered the term barrels.
State-run Saudi Aramco, Asia’s top naphtha supplier, has made an offer for the A-180 grade at $16 a ton to its price formula, sharply below its previous term deals agreed with some buyers at a $25-premium for second-half 2007 supplies.
Aramco offered the A-310 grade at $10-$12 a ton premium, versus the $19.50 premium it had achieved with some lifters for the July-December term contracts.
Aramco’s offers reflected the bearish spot market, as the state-run refiner usually divides its term offers into first-half and second-half of the year.
Despite the lower premiums from its previous term contracts, petrochemical producers and trading houses said they would lose money if they were to buy the cargoes at Aramco’s latest offer level.
“How can you sell spot cargoes at a $5 premium and make offers for term at $16? It really does not make any sense,” said a trader at South Korean petrochemical producer.
“You lose $1 million as soon as you load the cargo with the Saudis’ offer prices, so who wants to buy those cargoes?”
Other buyers, who received invitations from Aramco, also said the premiums were steep, as the Asian market has been under pressure this year from a glut of the heavier grade naphtha from India.
Indian refiners are expected to export some 900,000 tons for October, after selling near record-high volumes of 950,000-to 1 million tons for September, depressing notional discounts to as low as $5.50 a ton, the weakest since mid-November last year.
Asian petrochemical producers were also not rushing to buy as their demand had slowed down due to plant maintenance shutdowns and high inventories.
Industry sources said Aramco made the rare term offer as it has excess supply after Saudi Chevron Phillips Co is likely to delay the start up of its $3 billion petrochemical plant in Jubail to first-quarter 2008 from fourth-quarter this year.
Other sources said the offer might have also come after many regional naphtha buyers did not renew their contracts for second-half supplies, after Aramco sharply raised premiums by $15.25-$16.50 from first-half 2007 contracts.