UPDATE 1-Kuwait cuts naphtha offer after deal in surprise move

SINGAPORE, Nov 6 - Kuwait Petroleum Corp (KPC) has for the first time cut its term naphtha offer to $13 a tonne premium, despite sealing a deal with one buyer at a higher price which would have been normally accepted by others, traders said on Friday.

The $1 reduction from the premium agreed with Taiwan's CPC this week, could have been prompted by strong resistance from other customers including South Korea's Hanwha and YNCC, Japan's Mitsui Chemical and Maruzen as well as India's Haldia Petrochemicals, traders said. This unprecedented move could affect rival Abu Dhabi National Oil Co's (ADNOC) ongoing term talks, as it usually takes its cue from KPC, Asia's second-largest naphtha supplier after Saudi Arabia.

"This is the first time KPC had made such a move. In the past, once a buyer accepts a price, that's final and there will be no room for negotiation," said a trader.

The latest cut for KPC's December 2009-November 2010 naphtha supplies is the fourth since talks began on Oct. 12. It kicked off the offer at $19 a tonne premium to Middle East quotes, on a free-on-board (FOB) basis, and the latest came a day after CPC accepted its offer at a $14-premium.

"But this time around, the resistance was rather strong, with highest bids capped at $12.00 a tonne premium," a second trader said.

It remains to be seen if the latest revision at the $13-premium will be accepted by the buyers.

"The remaining customers have until the end of today to decide," said a third trader.

Despite having concluded its deal with CPC, traders said KPC will likely lower the term price to match the revised level.

"From my understanding, KPC will likely give CPC whatever the final price is," the second trader added.

Although naphtha sentiment is firmer now than a month ago, traders said buyers are treading carefully, as they would be locked into a 12-month contract at a time of uncertain demand and supply dynamics.

Crack spreads -- premiums/losses from refining Brent crude into naphtha -- was at $96.60 a tonne premium on Thursday versus an $80.10 premium a month ago, helped by Korean crackers running at full-tilt and robust Chinese petrochemicals demand.

But traders also noted that KPC has been selling more spot cargoes lately and at slight premiums.

Going forward, China will have more new crackers, which would reduce its petrochemicals imports. If this happens, South Korea, Japan and Taiwan will be badly hit, as they rely heavily on China to soak up their excess petrochemicals.

Additionally, new petrochemical supplies in the Middle East -- which is targeting China -- will affect the market share of Northeast Asian producers.

KPC itself has just started a new aromatics complex this week after months of delays, and it has been reducing its term naphtha exports since last year to divert feedstocks to the plant.

Given this, KPC did not renew the December-November contracts with Japanese traders Marubeni and Petro-Diamond, fully owned by Mitsubishi Corp.

Taiwan's Formosa Petrochemical, which did not renew the April 2008-March 2009 contract, was not in the current December-November talks.

IMPACT ON ADNOC

ADNOC, Asia's third-largest naphtha supplier, are in talks with buyers to close its term deals for January-December 2010 supplies, and will be closely watching the standoff between KPC and its customers over prices. Offers for ADNOC's three naphtha grades were quoted at $16.50 a tonne premium for pentane plus, followed by $15.50 premium for low-sulphur and $14.50 premium for splitter grade. All prices are pegged to the refiner's own price formula, on an FOB basis.

CPC has already accepted ADNOC's splitter grade at the offered price. "But given the revision in KPC's price, ADNOC may follow that cue," said a trader involved in the ADNOC talks.

ADNOC's contract prices are usually $1.00-$2.00 a tonne above KPC's.