Europe to NE Asia naphtha arb window widens

29 May 2008 11:16  [Source: ICIS news]

SINGAPORE (ICIS news)--Traders are likely to increase the movement of naphtha cargoes from Europe to northeast (NE) Asia, given the arbitrage opportunities as west-east differentials reached about $60/tonne mid-week, industry sources said on Thurday.

Freight for a 80,000 tonne vessel was at around $50/tonne, which equates to a profit of $10/tonne – more than enough to attract traders to move cargoes from Europe to Asia, said sources adding that surging freight costs could put a damper on this trading opportunity.

Traders had last moved an 80,000-tonne naphtha cargo for loading in the first half of May from Europe to Asia.  

"The current firming demand from NE Asia especially from Korean end-users has resulted in a strong arbitrage market," a source said.

The backwardation between the first half of July and first half of August had widened by $3.25/tonne to $7/tonne over last week.

South Korean end-users had recently started purchasing naphtha cargoes for delivery in the month of July, sustaining the firm price trend in Asia.

 Early this week, Asian naphtha broke another new historical record high, by trading at $1,125/tonne CFR (cost and-freight) Japan between Itochu and Mitsui Oil Asia Hong Kong for the second half of July contract.

Prices were up 20.95% versus gains of 20.12% in the Brent crude markets since early May. The former have been lagging behind gains in the latter earlier on due to weak market sentiments.

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By: Desmond Chia
+65 6780 4359

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