Focus Europe to Asia naphtha arb shut in July

19 July 2007 05:28  [Source: ICIS news]

By Nurul Darni

SINGAPORE (ICIS news)--The arbitrage window between northwest Europe and Asia has been firmly shut so far this month, relieving the market from a supply glut caused by rising Indian and Middle East exports, traders and brokers said on Thursday.

The window did not look workable as naphtha in Europe had been inching higher than Asian prices and the spread was too narrow to prompt long-haul shipments East, brokers said.

Open spec naphtha prices in Asia have eased to trade at $689.50/tonne CFR (cost and freight) Japan this week, off its recent high at $731/tonne posted at the end of May.  

"Asia is also not so hungry anymore. The market is well-supplied from plenty of offerings from India and even the Middle East," a senior trader with south Korea’s biggest refinery, SK Corp said.

On the supply side, a slew of Indian naphtha exports this month for August deliveries – estimated at 800,000 tonnes – weakened market sentiment and gave buyers a reason to slow down spot purchases.

From the Middle East, Kuwait had offered 25,000-tonne naphtha parcel for end-August loading, the producer’s second August naphtha cargo up for sale.

A lack of arbitrage cargoes from Europe was also a key reason half-month naphtha paper values were still holding in backwardation earlier this month despite limited spot demand, a Singapore-based naphtha broker said.

"Some of the key South Korean end users are reluctant to buy at the moment and preferred to wait until prices slip further," a trader in Seoul said.

The naphtha intermonth paper backwardation was pegged at $1-2/tonne between August and September, but has since been at parity between the two months, prompting speculation that the market could flip into contango soon due to concerns over ample supply and thin demand.

"If Asia (naphtha) prices fall further, then I don’t see how the arbitrage can swing open even towards the end of the month," a Japanese naphtha trader said.

By: Nurul Darni
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