FocusUS ethylene price plunge opens up C2 arbitrage to Asia

29 April 2010 09:41  [Source: ICIS news]

By Peh Soo Hwee

SINGAPORE (ICIS news)--The recent plunge in US ethylene spot prices is opening up arbitrage opportunities to bring the monomer from the Americas to Asia, traders said on Thursday.

Ethylene for May delivery was offered mid-week at 42.00 US cents/lb ($926/tonne, €704/tonne), representing a 22% drop from deals done at 53.00-54.75 cents/lb during the week ended 23 April.

The steep decline was brought on by increasing supply caused by cracker restarts as well as weak derivative polyethylene (PE) demand, market sources said.

Ethylene freight costs from the US to northeast Asia typically vary from $260-280/tonne for a large vessel carrying 6,000-9,000 tonnes to above $300/tonne for smaller cargoes, traders said.

The arbitrage could work based on prevailing ethylene spot prices at above $1,300/tonne CFR (cost and freight) NE (northeast) Asia although the long voyage and limited appetite for spot material from selected derivative sectors might be a stumbling block in negotiations, traders added.

"The cargo would take around 40-45 days to arrive in Asia while demand especially from PE producers is not so good," a regional olefins trader said.

Standalone high density PE (HDPE) margins in northeast Asia have remained in the red since December 2009 and were hovering at a loss of $126/tonne last week, according to global chemical market intelligence service ICIS pricing.

In comparison, standalone low density PE (LDPE) margins were positive at $89/tonne in the region over the same period.

During the week, there were reports that a 4,000-5,000-tonne ethylene spot cargo from Mexico for second-half May loading was sold at around $1,000/tonne FOB (free on board), but further details could not be obtained.

"The cargo is bound for Asia," said a Singapore-based trader, adding that freight costs would be more than $300/tonne.

Ethylene spot prices were at a two-month high of $1,270-1,310/tonne CFR NE Asia in the first half of the week, underpinned by snug supply in the region due to an ongoing cracker turnaround season and outages at Japanese crackers in March and April, market sources said.

Issues with heavy naphtha since February this year had also affected ethylene yields at some crackers in South Korea, resulting in delays and cuts in term exports, which had further tightened supply in the market, they added.

($1 = €0.76)

For more on olefins visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Peh Soo Hwee
+65 6780 4359

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