Europe naphtha arbitrage to Asia closed - sources

18 January 2011 14:21  [Source: ICIS news]

LONDON (ICIS)--An Asian oversupply of naphtha and subsequent downward pressure on prices has closed the European naphtha arbitrage to Asia, sources said on Tuesday.

Large quantities of European naphtha had recently been sent to Asia, which helped restrain an oversupply in Europe brought about by poor demand from both the petrochemical sector and the gasoline industry. However, this movement of material had contributed to an oversupply in Asia, sources said.

Traders confirmed that Asia will receive around 500,000 tonnes of European naphtha in February. Around 600,000 tonnes had been sent there in December.

In Europe, economics have recently favoured the use of alternative feedstock liquefied petroleum gas (LPG) over naphtha.

Furthermore, for three months it had not been financially viable for the gasoline industry to buy naphtha, as it was priced much higher than gasoline. Only last week was some demand from this sector rekindled, after gasoline prices rose.

With the arbitrage to Asia now closed, European oversupply was likely to worsen without a change in circumstances, sources said.

The consensus was that European naphtha prices would have to fall.

“With no arbs obvious, in terms of prices the next move really should be down," said a broker.

However, another source pointed out that refinery maintenance expected in the Mediterranean in February should tighten European supplies to some extent.

On Tuesday morning, naphtha was trading at $865-873/tonne (€649-655/tonne) CIF (cost, insurance and freight) NWE (northwest Europe).

($1 = €0.75)

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By: Jo Pitches
+44 208 652 3214



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