SunSirs: Demand Plummets, China Naphtha Market Continues to Slide

Core View: The naphtha market continued its downward trend this week. Weak international oil prices combined with a sharp drop in downstream demand created a "double-weak" scenario characterized by collapsing costs and plummeting demand. The SunSirs average spread indicator remained in negative territory, and prices fell below all short-term moving averages; short-term market sentiment is dominated by pessimism.

I. Price Review: Continuous Decline with Significant Drops in Regional Markets

As of July 2, the SunSirs benchmark price for naphtha stood at 7,476.67 RMB/ton, marking a cumulative weekly decline of approximately 1.17%. Regional markets saw even steeper drops; the mainstream transaction price for straight-run naphtha in Shandong fell to 6,698 RMB/ton—a sharp weekly decrease of 580 RMB/ton (7.97%). The spot market exhibited a pattern where the benchmark price showed relative resilience while regional price spreads widened; refineries in Shandong showed a strong willingness to cut prices to clear inventory, with some hydro-treated naphtha prices dropping by as much as 150 RMB/ton in a single day.

II. Fundamentals Analysis: Dual Pressure from International Conditions and Supply-Demand Dynamics

1. Cost Side: Collapse of Crude Oil Support and Reversal of Geopolitical Premiums

International oil prices remained weak and consolidated last week, with Brent crude hovering around $71.80 per barrel. The geopolitical premium associated with the Strait of Hormuz—which had previously supported oil prices—was fully erased due to progress in peace talks, causing Asian spot supplies to shift from tight to loose. Meanwhile, Russia saw increased crude exports and decreased refined product exports due to refinery capacity damage, further exacerbating concerns about a global crude oil supply glut. Saudi Arabia's decision to significantly lower its Official Selling Prices (OSPs) for two consecutive months also reflects a pessimistic outlook on demand among oil-producing nations.

2. Demand Side: Sharp Drop in End-User Demand and Deep Losses in Cracker Spreads

Last week, the demand side experienced a "cliff-like" drop. The average weekly capacity utilization rate for atmospheric and vacuum distillation units at independent refineries in Shandong fell to 42.95%, a week-on-week decline of 0.72 percentage points. The core issue lies in the sharp contraction of naphtha demand from independent refineries' reforming units; compounded by expectations of significant cuts to refined product prices, downstream buyers are adopting a "wait-and-see" stance. Furthermore, the Asian ethylene-naphtha spread remains in a deep-loss zone of -$96 to -$102.25 per tonne, indicating that olefin production units relying on purchased naphtha are still operating at a loss, which dampens the willingness to procure feedstock.

3. Supply Side: Increased Regional Supply

Despite shutdowns at some refineries, the startup of Lanqiao Petrochemical and the restart of Xintai Petrochemical’s secondary units have increased the volume of naphtha spot circulation in the region. Consequently, refineries have been forced to lower prices to move inventory amidst sluggish demand.

IV. Market Outlook: Weak Fluctuation and Bottom-Seeking

Overall, the naphtha market is currently in a downward trend driven by the combined impact of weak cost support and sluggish demand. The market is expected to continue its pattern of weak fluctuation this week. Key factors to watch include whether the price of straight-run naphtha in Shandong holds at the 6,600 yuan/tonne support level and whether the operating rates of independent refineries bottom out and rebound. Barring any sudden positive catalysts (such as escalating geopolitical conflicts or large-scale production cuts), the market is likely to follow a "decelerating decline – fluctuation – re-testing the bottom" trajectory.

SunSirs has been continuously tracking price data for over 200 commodities for nearly 20 years, please contact support@sunsirs.com for subscription.