European traders seek naphtha arb window to Asia

28 April 2008 07:19  [Source: ICIS news]

SINGAPORE (ICIS news)--European traders are seeking arbitrage opportunities for naphtha amid rising demand in Asia and a lacklustre market in Europe, industry sources said on Monday.

"Weakness in the western naphtha markets due to lacklustre demand from European end-users will be pushing European traders to divert their supplies to northeast (NE) Asia," a source said.

South Korean and Taiwanese end-users have been snapping up naphtha cargoes for the second half of May and June delivery, sustaining the firm price trend in Asia while demand in Europe has been sluggish.

Asian naphtha hit the $1,000/tonne CFR (cost and freight) Japan mark on Monday morning and first half of June indications were pegged at $998.25-1,001.25/tonne CFR Japan, second half June at $997-1,000/tonne CFR Japan and first half July at $995.75-998.75/tonne CFR Japan.

The backwardation was seen widening to $2.50/tonne this week from $1.50/tonne early last week.

European trader Glencore was heard to be shipping an 80,000-tonne naphtha cargo from Europe to NE Asia for loading in the first half of May on board the vessel Agathanissos.  

Another European trader, Vitol was earlier seen fixing a vessel to ship 55,000 tonnes of naphtha supplies on 22 April from the Mediterranean to NE Asia.

However, some players said the Europe-to-Asia arbitrage window may not materialise in early May due to the freight costs.

"The freight cost for an 80,000-tonne vessel is pegged at $32.50/tonne. With the west-to-east differentials seen at around $32/tonne, it may not be worthwhile to ship cargoes from the west to the east," a source said.

"However, as long as it suits their own business strategies, they will just move their cargoes," another source said.

Sources said the fixture by Glencore may not have been confirmed as it was difficult to source that much naphtha from the Mediterranean as the quality may not meet Asian standards. It was believed that the vessel would ship partial mogas as well or co-load with additional supplies from the Red Sea.

Meanwhile, crude almost hit the $120/barrel level in the US, after hitting a record high of $119.93/barrel as a strike closed a major British pipeline and on concerns of new violence in Nigeria.

By: Desmond Chia
+65 6780 4359

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