Taiwan's Formosa Petrochemical is planning to skip spot purchase of LPG for January delivery as it has become economically unviable to use LPG for petrochemical production, a source close to the company said Wednesday.
"We are unlikely to buy [spot] LPG for January," the source said, adding that it is not economical.
Naphtha is the mainstay petrochemical feedstock in Asia for steam crackers, but producers switch to LPG -- which typically comprises propane and butane -- as an alternative if its price is around 90% of naphtha, or when LPG is more than $50/mt cheaper than naphtha.
While the price of physical CFR Japan propane was $53/mt below the price of CFR Japan naphtha at the Asian close Tuesday, which made LPG consumption for petrochemical production economical by normal standards, the prices of downstream products have tilted the balance in favor of naphtha.
"Now butadiene and benzene prices [are] so high. Buying naphtha is more economical [as naphtha produces more butadiene]," said the source.
Naphtha yields about 2% more butadiene compared to LPG, the source added. FOB Korea butadiene has surged by 32% in the past month to a 45-month high of $1,930/mt at the Asian close Tuesday, from $1,460/mt on November 21, data from S&P Global Platts showed.
The product was last higher on March 7, 2013 at $2,030/mt.
The narrowing spread between LPG and naphtha, in addition to high butadiene prices, has led Formosa to steadily lower LPG consumption at its naphtha-fed steam crackers from 15%-20% of total feedstock in October to 15% in November, and down to 10%-15% this month. The company plans to reduce it to 10% in January.
"Economics keep changing. We were unable to buy enough spot LPG so there was not enough feedstock to crack," the source said.
Formosa has yet to decide whether it will skip LPG spot purchase in February, depending on economics. Its last spot purchase was for 23,000 mt of propane for December 21-31 delivery into Mailiao at a discount of $50-$55/mt to the Mean of Platts Japan naphtha assessment, DES basis.
Formosa operates three steam crackers in Mailiao with a combined ethylene production capacity of 2.93 million mt/year, propylene capacity of 1.465 million mt/year and butadiene capacity of 451,000 mt/year.
