30 August 1999 00:00 [Source: ACN]
Naphtha prices tested the US$230/tonne cfr Japan mark after soaring effortlessly past the US$220/tonne cfr Japan barrier last week.
The second-half October forward contract on the open-spec market was last week traded at a 29-month high of US$229/tonne cfr Japan.
Prices were now considered too high and above what was justified by market fundamentals despite tight supply. Market players said the driving force behind the latest surge was aggressive and partly speculative bids by a few traders on the open-spec market.
The strength in Asian markets far outpaced western markets. As a result, the Asia-Europe price difference had risen to nearly US$25/tonne - sufficient for the arbitrage window to fully open.
But the bad news for naphtha buyers is that difficulties in sourcing supplies from western markets are preventing significant volumes from flowing to Asia (ACN 23 Aug, p24). The recent blaze which hit naphtha tanks at Turkey's Izmit refinery has given rise to fears of shortages in western markets. This thwarted efforts to procure naphtha in European and north African markets for Asia.
The only firm fixtures to Asia were an Algerian cargo and a cargo to be assembled from multiple European sources, said a producer in Asia. These would add up to around 140 000 tonne, he said.
Market sources expect a total of 150- 200 000 tonne of western material to arrive in Asia in October. But this was considered insufficient to relieve the Asian shortage caused by depressed refinery operating rates.
Naphtha buyers' other hope is pinned on an expected rise in refinery production next month. But a refinery source cautioned that although refining margins have improved, operating rates may still be capped by the lack of crude oil.
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