Bahrain Petroleum Company (Bapco) has started its July-December naphtha price review with nine Asian customers, and set its offer at $15 a tonne premium to Middle East quotes on a free-on-board (FOB) basis, traders said.

This is 2.5 times higher than what it fetched for supplies lifting from January-June this year.

The contract is for 1.4 million tonnes of B210 naphtha for the entire 2009, but prices are reviewed twice a year, one trader said.

The sharply higher offer came as no surprise to some traders, although the market has been sliding recently because of an influx of naphtha supplies from Europe and the Middle East.

This was because Bapco had set a $6 a tonne premium late last year to reflect the worst slump ever, after Chinese demand for petrochemicals tanked.

Naphtha demand rebounded from January, yet Bapco's term customers continued to enjoy low premiums for supplies lifting in January-June as they were bounded by the contract prices.

"They need to recover those losses," said another trader.

The talks could take a while to conclude, with some traders expecting it to end only after Saudi Aramco finalises its July-December 2009 contract deals.

Saudi Aramco, Asia's top naphtha term supplier, will begin its term talks in London on May 11, and the negotiations are expected to last a week.

Asia's naphtha cracks -- premiums/losses obtained from refining Brent crude into the petrochemical feedstock -- fell to $64.60 a tonne premium on Tuesday, compared to this year's peak at $126.35 a tonne on February 12.

The market slipped after high volumes of more than 800,000 tonnes of European naphtha were booked to arrive in Asia this month. This was followed by an unusual 300,000 tonnes of spot naphtha exports coming in this month from Kuwait, because of a delay in the start-up of a new aromatics plant.

Bapco, whose term customers include Marubeni, Vitol and South Korea's YNCC, also had an unusual 100,000 tonnes of spot exports in June.

"Bapco exports some spot volumes, but it has never exported this much in one month," said a third trader.

Bapco, wholly owned by the Government of Bahrain, is engaged in the oil industry including exploration and distribution of petroleum products and natural gas, sales and exports of crude oil and refined products.– Reuters