FOCUS: Strong Asia naphtha lures arb shipments

30 May 2007 05:38  [Source: ICIS news]

By Nurul Darni

SINGAPORE (ICIS news)--A steep run-up in Asia’s naphtha prices is attracting long-haul shipments from the West of Suez and Europe to the region in the second wave of arbitrage flow this year, traders said on Wednesday.

Traders estimated that some 180,000-200,000 tonnes of naphtha largely from Algeria and Italy is expected to be fixed to arrive in Asia by mid-June, with the bulk of the cargoes expected to land in South Korea, Japan or India.

The East-West naphtha arbitrage window last swung open in March.

“The arbitrage economics make sense now for traders to move cargoes to Asia. There is also huge appetite (for spot naphtha) in the region,” a Tokyo-based trading manager said.

The strength in Asian naphtha was largely driven by robust appetite from petrochemical producers and tight availability as demand in the gasoline pool drew supplies away from the spot market. Asian naphtha prices set a fresh record high on 22 May, touching $740/tonne CFR (cost and freight) Japan.

A wide East-West naphtha spread also helped facilitate the arbitrage shipments, brokers said. The East-West naphtha spread had widened earlier this month to as much as $40/tonne and encouraged traders to charter large-range vessels to be fixed to Asia, they added.

Large-range tankers carrying up to 90,000 tonnes of naphtha were said to have been chartered by US trader Koch for early June arrival, traders said.

“I understand that there are some more arbitrage positions being taken by traders such as Koch and Trafigura to fix (naphtha) cargoes to Asia,” a trader in South Korea said.

Arbitrage deals, exploiting the price differentials between the West and East markets, could increase as long as the East-West naphtha spread does not narrow too sharply and there is sustained demand in Asia, traders said.

Ethylene capacity expansions in Asia should continue be supportive to naphtha this year, a feedstock for expanding petrochemical industry in Taiwan, South Korea and China.

By: Nurul Darni
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