NEW DELHI: India’s annual naphtha exports could plunge by as much as 1.2 million tonnes, after the country’s cabinet allowed three southern fertiliser plants to use the fuel as feedstock, since some gas supply pipelines are not yet ready.
India’s naphtha exports have been decreasing over the years, and Wednesday’s decision could stoke premiums, as Asia is structurally short of naphtha, traders say.
Naphtha is mainly used as a feedstock to produce petrochemicals in Asia, although it can also be used as a gasoline blendstock, depending on its grades.
“Indian naphtha production is declining as refiners are upgrading naphtha and building petrochemical plants,” said an Asian product trader. “With today’s decision local demand will go up and exports will shrink further. That may boost premiums.”
From January to June, India’s monthly exports of naphtha declined to 450,000 tonnes, from an average of about 520,000 tonnes last year, a Reuters calculation shows.
The cabinet has allowed Mangalore Chemical and Fertilisers Ltd., Southern Petrochemicals Industries Ltd. and Madras Fertilizers Ltd to run their plants on naphtha.
The three plants were to have shut down by June 30 last year as they could not switch to gas, but twice received government extensions to operate using naphtha.
After the latest extension ended on March 31, the plants have been shut, a government official said.
“The three plants will annually need 1.2 million tonnes of naphtha to produce about 1.5 million tonnes of urea,” Fertiliser Minister Ananth Kumar told a news conference.
He added that the state governments of Tamil Nadu and Karnataka would be required to waive levies on supplies of naphtha to help the plants operate, as naphtha is costlier than gas.
Indian Oil Corp was importing naphtha for some of the plants, traders added.
“If the state government give concessions, then there will be no imports,” one trader said.
Higher domestic output will also help India cut imports of urea, which reach about 5 million tonnes annually, besides 2 million tonnes bought under a long-term deal with Oman.
