Deep sea propylene arbitrage to Asia shuts for June delivery

04 May 2009 07:50  [Source: ICIS news]

By Steve Tan

SINGAPORE (ICIS news)--The arbitrage for deep sea propylene cargoes to Asia has firmly shut for June delivery amid falling regional prices and market uncertainty, trade sources said on Monday.

Asia had in the past few weeks soaked up excess supplies from around the globe as manufacturers sold off surplus propylene amounting to 33,000-40,000 tonnes in the face of declining demand, traders said.

Last week, a Brazilian cargo of around 8,000 tonnes was sold to regional buyers in southeast Asia at a significantly lower price of $765/tonne (€574/tonne) CFR (cost and freight) for end June delivery, which effectively sealed the arbitrage shut, sources said.

It was the latest and possibly the last deep sea parcel sold into Asia from a string of arbitrage cargoes from various origins such as Spain, Italy, the US, Libya and Brazil, which were bound for Asia between end-April and early June.

With import prices in China and southeast Asia poised to fall further below $800/tonne CFR southeast (SE) Asia as a result of the latest Brazilian cargo spot sale, most traders said it was an uphill task bringing in fresh deep sea parcels.

“No way,” said a Singapore-based olefins trader with regards to whether arbitrage cargoes from Europe or the US could still be sold into Asia.

He said the cost of bringing such eastbound cargoes from Europe to Asia would be around $830/tonne CFR SE Asia and that there were no “desperate sellers” in the market.

“If things are bad in Europe, then (propylene) prices can get cheaper,” said another Singapore-based olefins trader, who added that “as off now, I think not yet.”

Rising US domestic prices for May were also said to be sealing the arbitrage shut, with producers nominating May contract increases of 3 cents/lb ($66/tonne) on the back of tight supply and higher refinery-grade propylene (RGP) spot prices, which were posted between US 25-25.87 cents/lb ($550/tonne).

Freight costs remain on the high side with exports from the US to Asia around $290-300/tonne for a 9,000-tonne parcel. Similarly, spot freight from Europe to Asia was pegged around $260-270/tonne for 6,000-7,000-tonne parcels, said a shipping broker in Singapore.

Asian propylene spot prices, as of week ending 1 May, fell as much as $70/tonne to hit a low of $790/tonne CFR China for June discussions due to strong buyer resistance.

($1 = €0.75)

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By: Steve Tan
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