FocusChina local MTBE prices to rise on pump price hike hopes

11 February 2011 07:27  [Source: ICIS news]

By Felicia Loo

SINGAPORE (ICIS)--China’s methyl tertiary butyl ether (MTBE) prices are expected to rise further in the coming weeks, buoyed by expectations of a possible hike in domestic pump prices as global crude futures march towards $102/bbl (€75/bbl), traders said on Friday.

Local MTBE prices have increased to yuan (CNY) 7,600/tonne ($1,153/tonne) in the booming Chinese coastal cities from the east to the south, following the week-long Lunar New Year holidays that started on 2 February, they added.

Prior to that, prices stood at CNY7,400/tonne in eastern China and the southern markets reported prices at CNY7,450-7,500/tonne, trader said.

“MTBE prices in China are on an upward trajectory in anticipation of Beijing to raise retail gasoline (and diesel) prices. The market is basically tracking the current strength in crude oil,” said a Chinese trader who declined to be named.

By 0344 GMT, global Brent crude futures were up 66 cents at $101.53/bbl.

World’s top energy user China might soon raise pump prices because of strong crude futures because the 22-work-day moving average price of a basket of international crude oil – Brent, Dubai and Cinta – which Beijing tracks to see whether pump price adjustments are necessary, had gained 9.49% to date.

This was far above the 4% that was required for adjustments.

Possible adjustment to oil product prices may range between yuan (CNY) 400/tonne ($60.70/tonne) and CNY500/tonne, based on calculations from ICIS service C1 Energy.

The price hike could be implemented in mid-February at the earliest, market sources had said. Beijing last lifted pump prices on 22 December.

As spring approaches, Chinese MTBE demand would increase with more motorists on the roads, traders said.

In a sign of strong gasoline consumption, car sales in China rose 33.2% in 2010 to 13.8m units year-on-year, according to Association of Automobile Manufacturers (CAAM).

“The market is hoping for the pump price increase to take place soon,” said another Chinese player.

At present, Chinese MTBE buying indications of $940/tonne CFR (cost and freight). China fell short of international prices of $960/tonne FOB (free on board) Singapore, traders said.

“At this rate, market players rather sell MTBE to blenders in Singapore since the reforming margin is good,” said one trader, referring to the spread between naphtha and 92-octane gasoline.

The naphtha market was getting weaker because of the start of the peak cracker maintenance period this month.

The margin was valued at a six-month high of $11.60/bbl on Thursday, traders said.

($1 = €0.74/ $1 = CNY6.59)

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By: Felicia Loo

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