US-China styrene arbitrage limited: sources

31 October 2007 04:42  [Source: ICIS news]

SINGAPORE (ICIS news)--Higher prices in the US and weaker demand in China has closed the styrene (SM) arbitrage window between the two countries, market players said on Wednesday.

“In contrast to the improving SM prices in the US in the past two months, demand in China has weakened since early October and prices have been edging lower,” a trader in Shanghai said.

Spot prices in the US have increased to around US cents 59/gal FOB (free on board) US Gulf, from US cents 57/kg in August, according to global market intelligence service, ICIS pricing.

Prices at US cents 59/gal translated to $1,300/tonne approximately, a Korea trader said.

Taking into account spot freight rates of around $70/tonne, the cargo would land in Korea at around $1,370/tonne CFR (cost and freight). The transhipment cost to China would probably add another $20-25/tonne to the costs.

“Also, Chinese buyers typically require 90 days of credit which would add another $20/tonne to the price,” a trader said.

 In total, the cost to ship US parcels to China could be as high as $1,410/tonne CFR with 90 days credit, while spot prices over the past two weeks were below the $1,400/tonne CFR China level, traders said.

Several Chinese traders said US cargoes arriving at Chinese shores were less than previously expected.

Previous estimates pegged arrivals to China at 50,000-70,000 tonnes for September and 30,000-40,000 tonnes for October while the broad estimate for three months of September to November was anywhere between 200,000 tonnes to 300,000 tonnes. Most of these parcels were said commited for contracts with less than 10% for spot.

A trader in eastern China said that a portion of the cargoes may have remained in Korea as the Chinese demand for SM had been weak since the National Day holidays in early October.

Another said that some producers in Korea could be using the cargoes to meet contract obligations locally as they had reduced operating rates due to high feedstock costs.

Other traders believed otherwise, saying that a lot of transhipments take place in Korea and smaller vessels will ship cargoes to China.

If calculations of arrival volumes are based on large vessels, which typically is the case, then the volume arrived at the Chinese shores would appear less than total estimates, traders said.

By: Clive Ong
+65 6780 4359

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