Around 1.4 million tonnes of the fuel, which is used in the petrochemical industry and to also to blend with petrol, are expected to land in Asia in July, the highest monthly level since February, according to three traders who track the fuel.

The extra supplies have reversed an upswing in spot premiums paid for naphtha.

Taiwan's Formosa Petrochemical Corp, Asia's top naphtha importer, had to pay $15 a tonne premium to its own price formula on a cost-and-freight (C&F) basis on May 24, the highest price since 2014.

By June 13, premiums had fallen by more than 40 percent for Formosa.

India's Mangalore Refinery and Petrochemicals Corp Ltd similarly saw its sale premium for a July cargo fall to $24 a tonne to Middle East quotes on a free-on-board (FOB) basis from the average for three June cargoes at $31.50 [NAP/TENDA]

CHANGE IN QUALITY

Premiums pulled back not only because of the higher monthly volumes, but because these supplies have changed in quality.

Asia mostly uses open-specification naphtha, a lighter form of the fuel, while Europe tends to supply heavier grades.

That, however, changed from June.

"Before June, incoming Western naphtha was mainly heavy naphtha and heavy full-range grade. Open-specification naphtha was tight," said a trader who closely tracks the fuel requesting anonymity as he is not authorized to speak to the media.

Michael Dei-Michei, head of research of trade consultancy JBC Energy, said high European refinery output and weak gasoline demand were reasons for the surge in open-spec naphtha to increasingly arrive in Asia.

"Atlantic gasoline is well-supplied at the moment – likely exacerbated by high pump prices – and incremental blending is weak, potentially freeing up some naphtha volumes that we haven't seen in earlier months this year," he said.

"Assuming this is what is driving the higher volumes of open-spec heading to Asia, we would expect more of the same in the coming months with potentially strong runs ahead of us in Europe and the U.S," he added.

(Reporting by Seng Li Peng; Editing by Vyas Mohan)

By Seng Li Peng