Kuwait's KPC kicks off talks with term buyers

05/10/2017 14:57 AST

Kuwait Petroleum has begun discussions with its term buyers on the renewal of naphtha contracts for supplies over December 2017 to November 2018, market sources said late Wednesday.

KPC has offered to supply naphtha for the 12 months starting December 2017 at premiums in the mid-teens to the Mean of Platts Arab Gulf naphtha assessments, a source said.

The producer offers two grades -- full range naphtha and light naphtha. The exact offer prices for the two grades are not known.

"We are on the table of negotiation now," said a term buyer. "[KPC is offering] at mid-teens," the source said.

No buyer acceptance was heard at this level yet. KPC could not be reached for comment.

The offers are around three times higher than its current term contract.

The company had sealed term contracts with end-users and traders for its December 2016-November 2017 naphtha cycle at a $4/mt premium to the Mean of Platts Arab Gulf naphtha assessments, FOB, for full range naphtha, and a $5/mt premium to MOPAG naphtha assessments, FOB, for light naphtha.

The current term premiums are the lowest in at least five years. Premiums for KPC's December 2016-November 2017 term cycle were around 65% below the December 2015-November 2016 contracts, and were also the lowest since the December 2008-November 2009 contracts at $2/mt amid the global financial crisis.

The low premiums came on the back of sluggish fundamentals in the naphtha market last year as supplies weighed on the market and petrochemical producers displaced a portion of naphtha feedstock with LPG.

This year the market staged a slight recovery on solid demand from the petrochemical sector. Naphtha has been the key petrochemical feedstock for most of this year as LPG prices surged, partly due to production cuts after Middle Eastern producers cut crude production from January this year, which impacted LPG output.

Spot FOB AG naphtha premiums have rallied from an average of $4.80/mt in the first three quarters of 2016 to an average of $8.90/mt over the same period this year, according to data from S&P Global Platts.

Talks are expected to continue over this week, with buyers to indicate their bid levels, and both sides to narrow their buy-sell spread until an agreement is reached.

KPC has three 12-month term naphtha cycles: December-November, April-March and August-July.

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Platts