Europe traders risk Asia styrene arbitrage

29 July 2008 17:02  [Source: ICIS news]

LONDON (ICIS news)--Players in the European styrene market are gambling on a potentially lucrative arbitrage window from Asia into the region despite the potential for losses on the long shipping period, market participants said on Tuesday.

Traders and brokers reported that upwards of 20,000 tonnes of styrene had been fixed from locations in Asia landing in ARA (Amsterdam, Rotterdam, Antwerp).

“It’s a long shot,” said one trader. “Some of this hasn’t even loaded. The product won’t come until September, and given the imports from the US it is a bit of a gamble.”

Two loads, of 7,000 tonnes and 2,000 tonnes, were mooted from Ulsan, South Korea, with shipping of the former valued at $140/tonne (€88/tonne).

A third load, of 12,000 tonnes, was also widely discussed as being fixed from Hiroshima, Japan, into ARA at $120/tonne shipping.

Traders were taking the risk of shipping material to Europe, a process which takes around a month, because of the wide gap between Asian and European values, players said.

Any August styrene was being offered at $1,840/tonne FOB (free on board) Rotterdam in Europe on Tuesday, with September loading material offered significantly lower, at $1,770/tonne FOB Rotterdam, according to global chemical market intelligence service ICIS pricing.

The latest indications for Asian spot styrene were given at $1,575-1,590/tonne FOB Korea for August loading material.

The high end of this range would still be $180/tonne lower than September values in Europe, offering a clear window of arbitrage opportunity given the above shipping rates.

Traders, however, said that bringing material in from Asia was a tricky move, given that a large volume of styrene was expected to arrive in early August from the US, potentially driving the market down.

Another trader said that the potential profit made the risk worthwhile, however.

“The prompt market has been in the $1,800s/tonne for quite a while now,” the trader said.

“If we see prompt tightness creeping back in after the US material arrives, and the values come back up, you could be talking about a $200/tonne differential between the import and spot. Not bad on 20,000 tonnes.”

On top of the 2,000 tonne styrene vessel was a further 8,000 tonnes of monoethylene glycol (MEG). The recent drop in Asian spot and rise in European numbers has also led to traders looking to import MEG to Europe.

Another trader said last week it had agreed material from the Middle East at a price well below what was on offer from European sellers.

Bulk Europe spot was pegged between €820-870/tonne CIF (cost, insurance, freight) NWE (northwest Europe), well above Chinese levels of $985-995/tonne CFR (cost and freight), according to ICIS pricing.

($1 = €0.63)

Ed Cox contributed to this article
For more on MEG and styrene visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Peter Salisbury
+44 20 8652 3214

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