On Monday, ethylene prices in the United States declined as deals were concluded at lower levels, reflecting a softer sentiment in the petrochemical chain. Ethylene was assessed at 21.50–22.00 cents/lb FD US Gulf, down by 0.50 cents/lb compared to last Friday. In contrast, Asia recorded firmer sentiment, with ethylene prices assessed at USD 835–845/mt CFR North East Asia, up USD 10/mt over the same period, highlighting the divergence between the two regions.
At the same time, the naphtha market is presenting traders with a significant arbitrage window. Naphtha, a key petrochemical feedstock, currently offers an arbitrage opportunity of about USD 100 per tonne, allowing traders to purchase cheaper volumes in the United States and sell at higher levels in China, with transport and handling costs absorbed by merchants. This opportunity has emerged as global markets face mounting uncertainty and shifting fundamentals. According to Polymerduniya Research, FOB naphtha prices in the US Gulf were reported at USD 497.1–497.2 per tonne on August 22, compared with USD 588–590 per tonne on a CFR basis in East Asia. The gap has widened since early August, when the arbitrage was around USD 83 per tonne.
Naphtha, a volatile and flammable liquid mixture of hydrocarbons derived mainly from crude oil, natural gas condensates, and coal tar distillates, plays a crucial role as a feedstock for the production of ethylene, propylene, benzene, toluene, and xylene. It is also an important input for producing plastics such as polyethylene and polypropylene, as well as synthetic rubbers and chemical intermediates. The global naphtha market was estimated at 277 million tonnes in 2024 and is projected to grow at a compound annual growth rate of 4.2 percent through 2035. Demand from the petrochemical sector alone is forecast to rise to nearly 435 million tonnes by 2035.
Recent price movements have been shaped by declines in crude oil. US Gulf naphtha prices fell by 8 percent in August, from USD 537.7–537.8 per tonne on July 30 to USD 497.1–497.2 per tonne by August 22. East Asian prices fell more moderately, by 3.75 percent over the same period, from USD 611–613 per tonne to USD 588–590 per tonne. The downward pressure on naphtha reflects weaker global crude oil benchmarks. Brent futures on the Intercontinental Exchange fell by 7.5 percent in August to USD 67.73 per barrel, while West Texas Intermediate futures on the New York Mercantile Exchange dropped more sharply, losing over 9 percent to USD 63.66 per barrel. Factors contributing to this decline include subdued demand due to US tariffs and slowing economic growth, rising OPEC+ production as output cuts are phased out, record US production, and ongoing uncertainty over Federal Reserve monetary policy.
In the United States, high refining runs earlier this year created an oversupply of naphtha, pushing prices down and dampening sentiment. Although oversupply concerns have now moderated, abundant shale liquid production continues to provide ample supply. Meanwhile, China’s petrochemical expansion is driving robust demand, supported by new plant start-ups and increased import quotas. China’s naphtha demand is projected to grow from 83 million tonnes in 2024 to 119 million tonnes by 2035, with imports expected to reach record levels of 16–17 million tonnes in 2025. The government has doubled its naphtha import quota to 24 million tonnes this year, underscoring the importance of securing feedstock for its growing petrochemical sector.
This divergence between supply-rich US markets and demand-driven China has created an attractive arbitrage opportunity for traders. However, risks remain, including overcapacity in Asia, volatility in crude oil prices, and shifting trade policies. While the Asia-Pacific naphtha market promises lucrative margins for those able to navigate its complexities, it also demands flexibility as market conditions evolve rapidly.
