FocusUS-to-Europe cyclo arb a rare opportunity

With players certain of a drop in this month's US contract, many mooted an April differential between the two regions at as much as $200/tonne (€128/tonne).

Assessed Europe April CX contract levels were at €897/tonne EXW (ex-works) NWE (northwest Europe), down €35/tonne on March, and equivalent to $1,402/tonne EXW NWE, on the basis of a second-quarter CX delta at €155/tonne and April benzene settled in the region €45/tonne down at €742/tonne FOB (free on board) NWE.

In the US, meanwhile, the most recently settled CX contract had been for March, at $366-372/gallon ($1,242-1,262/tonne) FOB USG (US Gulf).

Given that freight from the US to Europe was currently valued at $50-53/tonne and the US market described as weak, players said there was a definite opportunity for US sellers and European buyers to profit from the disparity in pricing.

The question on many players’ lips, however, was the likelihood of a traditionally quarterly contract-based market moving to more liquid spot business.

“With benzene lower in the US than in Europe and the delta set at €155/tonne over here for the next three months there is absolutely a paper opportunity to import material,” said one European aromatics trader and distributor.

“However, most CX contracts are long-term on both offtake and intake. The question is, if supply is good in Europe will people try to exploit the window of opportunity?

"But if supply was extremely tight in Europe then people would certainly try it.”

A southern European CX consumer had recently bought April volumes from the US, but that this had been an exceptional circumstance, based on concerns over an outage at the buyer’s supplier, the distributor added.

A source at a central European buyer, meanwhile, said that interest was developing over the possibility of importing material, adding that he was already using non-European origin feedstocks in other production facilities.

“Although demand for CX is not as robust as to allow for significant purchases, there is the opportunity,” the source said.

“As contract portfolios allow, there is the possibility to reduce European demand and bring in material from the US. On other feedstocks, I have more or less stopped buying from Europe because material is $200-300/tonne cheaper on import.”

The buyer said that the weakness of the US dollar against the euro had helped this position, adding extra buying power to European consumers from foreign dollar markets.

“I am not a currency analyst, but I don’t see any sign of the exchange rate changing significantly,” the buyer source said. “In Europe at the moment, sellers aren’t trying to increase prices - now they are just trying to maintain them.”

Producers in Europe said they were not overly concerned by the prospect of price pressure from competitive imports in the short term, as their contracting process was set on a quarterly basis and factored in European feedstock costs.

“It might be there theoretically - but that is it, it is theoretical,” said one producer. “And contracts are settled for the quarter - who knows where we will be in three months’ time.”

($1 = €0.64)

For more on CX visit ICIS chemical intelligence

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