Saudi Aramco, Asia's top naphtha term supplier, will hold its July-December term negotiations with Asian buyers in London on May 11, coming at a time of weakening demand, traders said.

The last time the heavyweight supplier held talks in mid-December, the market was also struggling to emerge from its worst-ever slump due to poor Chinese demand.

That led to the lowest premiums Saudi Aramco had fetched in years at $3.00-$5.00 a tonne above Middle East quotes on a free-on-board (FOB) basis for supplies lifting in the first-half of this year.

“But they may not go low this time, as they have already lost out when the market trended upwards most of this year until recently," said a trader not involved in the term talks.

The market started to recover in end-December just after the Saudis concluded their previous deals, and stayed strong till just recently as Chinese demand re-emerged.

"Abu Dhabi National Oil Company (Adnoc) managed to revise their April-March premiums upwards to cash in on the stronger demand earlier, so did Kuwait.

Aramco will want to recover that. My guess is that their new premiums shouldn't be too far from Kuwait's," the trader added.

Adnoc in February raised its April 2009-March 2010 premiums to $23.50-$26.00 a tonne, FOB, at least five times higher that its January-December 2009 premiums.

Kuwait Petroleum Corp (KPC), second largest term supplier, sealed its April 2009-March 2010 contract at $19.00 a tonne premium, FOB, almost ten times higher than its December 2008-November 2009 premiums.

However, the market has been heading further south, and spot prices on a cost-and-freight (C&F) basis have flipped into a discount for the first time this year late last week.

This was due to ballooning spot supplies to Asia from Europe, India and Kuwait, which has recently sold large spot volumes as its anticipated domestic demand waned due to the delay in the start-up of an aromatics plant.

South Korea's Honam Petrochemical also got its first discount this year for 40,000 tonnes of naphtha on Tuesday.

Some traders said Asia is still short of naphtha if not for the European inflows, adding that buyers would be making the right choice by buying spot barrels and cutting back on term volumes when the market is long on supplies.

"But you never know when this move will come back to haunt you," said the same trader, adding that the market carries with it a lot of uncertainties and could recover just as quickly, hitting those who have not locked themselves into term contracts.

Saudi Aramco usually holds two term talks within a year, and the discussions usually last about a week.

Its customers include CPC, Daelim Corp, Hanwha Corp, Shell, BP, Chevron and PetroChina.

South Korea's Honam and the country's top ethylene maker, YNCC, had dropped out of the contract last year, choosing to buy from the spot market. – Reuters