FocusEast-to-West benzene arb to ease Asia glut

29 August 2008 05:37  [Source: ICIS news]

By Mahua Chakravarty

SINGAPORE (ICIS news)--The benzene arbitrage window from Asia to the US has persisted for almost a month with more cargoes heard fixed for August and September loading, which could draw down the current high inventory in Asia, said traders and producers.

"Supply is still long in Asia, but it is improved compared to July," said a Japanese trader.

About 15,000 tonnes of benzene would be shipped from South Korea to the US Gulf from 20-30 August with the freight costs estimated at $71-73/tonne, said a shipping broker.

Traders and producers believed that total exports in August, which was expected to reach the US in October, could be higher at about 30,000 tonnes. The cargoes were sold mostly on spot basis, contrary to the regular contract business ex-Asia.

Cargoes for September shipment, scheduled for arrival in the US towards the end of October or early November, were estimated to be even higher than August at above 50,000 tonnes, said traders and South Korean producers. No further confirmation was available.

The arbitrage window first opened earlier in August, when the US-Asia price gap widened enough to facilitate trans-ocean shipments.

The re-opening of the arbitrage window this time would help to reduce the high inventory levels in Asia, they added. Since early July, benzene supply had built up in the region, partly due to limited arbitrage flowing from Asia to the US and also on weak demand from the key downstream styrene monomer (SM).

Shutdowns at SM units in Japan and Taiwan in the third quarter and lowering of operating rates in Japanese SM units had resulted in a slowdown of benzene demand.

Hence, the rise in US prices and the simultaneous fall in Asian values from July helped to widen the price spread between both regions, said traders.

US benzene values have been on a firm path in the past few weeks due to tight supply and this had resulted in an increase, traders added.

Traditionally, freight costs from Asia to the US are estimated at around $70-80/tonne and this is the spread needed between US and Asia spot values for the arbitrage window to open.

US spot benzene value for September was pegged at $4.50-4.60/gal FOB (free on board) HTC (Houston-Texas City) or $1,345-1,375/tonne FOB HTC on Thursday, $165-180/tonne higher than Asian values.

Spot benzene values in Asia were assessed at $1,180-1,195/tonne FOB Korea, $5-10/tonne lower than Thursday’s close, according to global chemical market intelligence service ICIS pricing.

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By: Mahua Chakravarty
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