FocusHigh Asia ethylene values open up arbitrage window

27 July 2009 05:45  [Source: ICIS news]

By Peh Soo Hwee

SINGAPORE (ICIS news)--Asia has become an attractive destination for US ethylene cargoes as arbitrage opportunities have opened up due to regional spot prices rising to eight-month highs, industry sources said on Monday.

But deals could be hampered by long voyages and costly freight, sources added.

Last week's spot ethylene prices in Asia of $980-1,040/tonne (€686-728/tonne) CFR (cost and freight) northeast (NE) Asia were about twice as high as those in the US, according to global chemical market intelligence service ICIS pricing. 

Pipeline prices in the US gained 1.25 cents/lb to 20.25-22 cents/lb DEL (delivered), or the equivalent of less than $500/tonne, over the same period.

Discussions were underway last week to sell a 9,000-tonne cargo from the US to Asia at competitive prices for mid- to late-September arrival, market sources said.

Potential buyers said US ethylene was offered at close to $900/tonne CFR Asia in contrast to selling ideas for regional cargoes at $1,050/tonne CFR Asia.

“The cargo will arrive only in second half September, so buyers will be hesitant to take decisions,” said one end-user.

The trader bringing in the cargo has the option to bring the material to Europe, a company source said on 24 July.

Spot prices in Europe rose €40-50/tonne ($57-71/tonne) to €740-770/tonne FD (free delivered) NWE (northwest Europe) via pipeline last week due to recent unplanned cracker outages.

If the US ethylene cargo goes to Asia, it will have to be split among a few buyers due to limited tank space, market sources said.

“We understand that the trader is still looking for more buyers, otherwise there is no deal,” said one buyer in northeast Asia.

Asia typically sources ethylene within the region or from the Middle East.

Cargoes from the US rarely come to the region partly due to the long voyage, which lasts more than one month.

Freight costs were also estimated at more than $300/tonne for a 4,000-5,000 tonne parcel and at around $250/tonne for larger cargoes, shipping and trading sources said.

Nonetheless, expectations of the prospect of deep-sea ethylene parcels to Asia kept buying ideas firmly at below $1,000/tonne CFR Asia. The wide buy-sell gap has hampered trades for the last two weeks.

“There’s not much upside for ethylene because most of the derivatives cannot sustain current prices,” said an olefins trader in southeast Asia.

“The only thing that could knock off ethylene prices would be a drastic drop in polyethylene (PE).”

PE spot prices, however, have remained firm. High density PE for film grade was up $20/tonne at the top end of the range last week, at $1,220-1,300/tonne CFR China.  

($1 = €0.70)

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By: Peh Soo Hwee
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