By Ann Koh and Brian Murphy July 1 (Bloomberg) -- Naphtha exports from Europe to Asia may drop to zero this month as demand from Chinese chemical producers slows, making forward prices more expensive than those for prompt delivery for the first time in eight months. There may be no shipments of the oil product, used to make gasoline and petrochemicals, in July, compared with 300,000 metric tons in June and 500,000 tons in May, according to the median estimate in a Bloomberg survey of six Europe-based traders, who declined to be identified as they aren’t authorized to speak on transactions. The last time there were no European exports to the region was in March, the traders said. “The chemical market is still weak and China isn’t buying,” said Jinsu Yim, a Singapore-based analyst at Chemical Market Associates Inc., which advises oil refiners, banks and manufacturers. The pace of economic growth in China may slow as the country’s manufacturing sector expands less rapidly. The government’s Purchasing Managers’ Index declined for a second month to 52.1 from 53.9 in May, less than economists’ forecasts in June. The Conference Board revised its leading economic index for the world’s fastest-growing major economy to the smallest gain in five months in April. Naphtha is used in everything from washing-machine casings to plastic bags. Front-month naphtha swaps traded at $70.95 a barrel in Singapore yesterday, 5 cents cheaper than the August contract, according to data compiled by Bloomberg. It was the first time since October that the front-month swap traded at a discount to the next-month contract for two consecutive days, indicating current demand is weak, traders said. ‘Massive Growth’ Chinese naphtha imports have declined in the first five months of year, according to the country’s Customs General Administration. They rose to a record 359,554 tons in October last year, from none in 2005. “China’s massive growth in naphtha demand cannot be sustained at these levels, which means Asian prices are under pressure,” said David Wech, head of research at Vienna-based consultants JBC Energy GMbH. Naphtha for delivery in Japan fell 10 percent this quarter to $654.13 a ton, the biggest decline since the three months ended September 2009, according to Bloomberg data. Cargoes for prompt delivery in Northwest Europe were trading at $638 a ton yesterday, the lowest since June 8. Asian and Middle East naphtha production has risen as refiners resumed operations after maintenance work. Japan’s Cosmo Oil Co. said it started a crude unit at its Chiba refinery on June 23 after it was shut on April 14. Kuwait National Petroleum Co. is scheduled to resume production at refinery units in Mina Abdulla after maintenance in April and June. Slack Demand The current lower demand for naphtha in Asia is shown by spot naphtha cargoes from the Middle East trading last week at a premium of about $9 a ton to benchmark Persian Gulf prices, according to two traders in Asia. This is less than half the premium Kuwait set in June for term supplies to Asian buyers for August to July next year, two traders with knowledge of the company’s negotiations said at the time. European refiners will struggle to make a profit by selling cargoes to Asia as the price difference between the two regions is about $13 a ton, compared with the approximate $20 a ton it costs to charter a tanker to carry 80,000 tons of naphtha, according to the trader survey. While Asian demand dries up, the U.S. may absorb the European cargoes, with 300,000 to 500,000 tons likely to be transported across the Atlantic this month as the holiday driving season raises demand for naphtha to be made into gasoline, the traders said. In Europe, the premium at which July-delivery naphtha trades to August fell to $1.78 a ton yesterday, the narrowest difference in four days, indicating increased supplies. European naphtha margins from processing Brent crude oil also dropped to a 10-week low yesterday, partly as petrochemical companies favor liquid petroleum gas to produce plastics. Naphtha for July traded at a discount of $3.85 a barrel to Brent, the lowest level for front-month contracts since April 16, according to PVM Associates Ltd.

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