"Spreads are in contango. Outright prices are weak in comparison to crude. This is definitely going to affect the negotiations," one naphtha trader with a major Japanese trading house said.

KPC will hold a series of term talks with its Asian naphtha lifters in Singapore from January 25.

At stake is some three million tonnes of full-range material to be supplied by the state oil firm during a one-year period from March.

The outcome of the first major naphtha term talks of 1999 is likely to set a tone for other price talks scheduled for later in the year, including those with world's largest oil supplier, Saudi Aramco, traders said.

A year ago, KPC's term naphtha price was set at $7 per tonne over the mean of Middle Eastern quotes for the current term year ending in February, taking a plunge from a $13.50 premium set for the previous year.

The sharp decline was attributed to bearish market sentiment stemming from the Asian financial crisis.

The premium was slashed further by $1 in June 1998 for another KPC term year that started in August.

"Buyers are paying no attention to the current $7 premium. Their focus is on how much lower they could go below the latest premium of $6," another trader said.

The impact of new ethylene plants starting operation in the region, which could otherwise be considered a bullish factor, is minimal as the slow economy is putting a cap on Asia's petrochemical products demand, traders said.

Taiwan's Formosa Plastics Group and Thailand's Rayong Olefins Co brought new ethylene plants on line late last year.

Formosa's new ethylene plant has an annual output capacity of 450,000 tonnes, while the Rayong Olefins plant is capable of producing 600,000 tonnes of ethylene a year.

"It's a zero-sum game. If those new plants win parts of market share, some other plants have to cut production. It's not like overall demand is growing in Asia," the trader said.

Before the currency crisis hit the region in 1997, Middle eastern suppliers easily fetched bullish premiums, helped by the expectations of steady growth in Asian naphtha demand. arbitrage cargoes, Asia's benchmark open-spec naphtha has tumbled by more than 20 per cent since last November, compared to about a 15 per cent decline in global crude prices over the same period.