FocusRecord Europe MTBE triggers Asia rally, China buyers struggle

14 April 2011 07:28  [Source: ICIS news]

By Ross Yeo and Felicia Loo

The driving season in US and China from July to August is expected to boost demand for MTBE - an octane booster in gasoline.LONDON/SINGAPORE (ICIS)--European spot prices of methyl tertiary butyl ether (MTBE) surged to a record high this week, on the back of robust global oil futures, tight supply and firm demand, triggering a price rally in Asia, market players said on Thursday.

Domestic prices in China also soared to an all-time peak but are lagging behind the rest of Asia, leaving Chinese buyers scrambling for spot material, they said.

In Europe, MTBE prices soared to $1,438-1,460/tonne (€992-1.007/tonne) FOB (free on board) Amsterdam, Rotterdam, this week, eclipsing the previous high of $1,385/tonne in mid-July 2008, according to ICIS data.

Prices of the octane booster was assessed significantly stronger as $1,190-1,210/tonne FOB Singapore in the week ended 8 April, the highest levels since 11 July 2008, when MTBE prices closed at $1,210-1215/tonne FOB Singapore, the data showed.

Global Brent crude futures are hovering near $123/bbl on Thursday amid a civil war in OPEC member Libya and a gasoline supply shortfall in the US ahead of the peak summer driving season that starts next month.

Even the leading China market is feeling the heat of lofty prices, with domestic MTBE prices rising to a record yuan (CNY) 9,600-9,800/tonne ($1,470-1,501/tonne) on Wednesday. Fresh offers are quoted at CNY10,000/tonne, but there were no takers yet, market players said.

“Supplies are drained in China especially in the booming eastern coastal belt. Imports have been very thin because Chinese domestic prices have been lagging international levels,” said one trader in Shanghai.

MTBE CFR (cost & freight) China prices at $1,170-1,250/tonne, already lifted following Beijing’s recent move to raise pump prices, failed to bolster imports into the world’s biggest energy user, traders said. 

“There are hardly any [spot] imports and it’s a difficult situation,” another trader said.

At this juncture, MTBE plant maintenance was scarce in China as the bulk of Chinese producers would be ramping up output ahead of the driving season – somewhat synonymous with the US – that stretches from July to August during which hundreds of thousands of motorists are expected, market players said.

On April 7, China lifted retail gasoline and diesel by CNY500/tonne and CNY400/tonne, respectively.

The 22-day moving average price of a basket of international crude oil – Brent, Dubai and Cinta – which Beijing tracks to see whether fuel price adjustments are necessary, had gained over 14% until 5 April, according to C1 Energy, an ICIS service in China. This was far above the 4% that is required for adjustments.

The National Development and Reform Commission (NDRC) usually delays the adjustment for 20 days and is more likely to do so now as it tries to stabilise prices against inflation in China this year, industry sources said.

Signs of slowing car growth rate to single-digit levels could temper demand, but the impact might not be apparent until a few months down the road, market players said.

China sold 4.98m units of vehicles in the first quarter of this year, 8.08% more compared with the same period last year, according to the China Association of Automobile Manufacturers (CAAM).

Passenger car sales reached 1.35m units in March and 3.84m units in the first quarter, up 6.52% and 9.07% year on year respectively, CAAM data showed.

The exit of stimulation policies, rising fuel prices, restrictions on car buying in first-tier cities such as Beijing and Shanghai, stricter emission rules and the 11 March earthquake and tsunami in northeast Japan slowed down China’s car market expansion in both March and the first quarter, the association said.

Meanwhile, in Europe, where a slew of refinery maintenance is taking place, both planned and unplanned, MTBE supplies are getting even tighter, they added.

In addition to the usual seasonal increase in blending demand during summer, sources identified two unanticipated factors which were contributing to the supply imbalance.

The first was the arbitrage westwards across the Atlantic, which has resulted in high levels of exports and is supported by strong demand from Venezuela, as well as a scheduled turnaround at one of LyondellBasell’s two Channelview, Texas units, removing around 12,000 bbl/day for up to two months from April.

The second factor is the strong MTBE consumption by the German market which followed the unpopular introduction of E10 gasoline (10% ethanol) in February this year.

The market had previously expected E10, which replaced regular RON95 gasoline blends at German pumps, to destroy MTBE demand in favour of ethanol.

Yet, the poor public reception of the high-ethanol blend, largely borne out of concerns over potential vehicle damage, as well as the lower energy content of ethanol, has led to a boost in demand for the only other blend of gasoline usually available – ‘super’ RON98, which contains high levels of ether such as MTBE or ethyl tertiary butyl ether (ETBE).

“I think everyone will have taken the high summer demand into account, but it’s these other two factors which no one expected and are really tightening the market,” said a producer.

Despite the extraordinarily high prices, no significant increase in imports has yet been seen and sources said it was unclear whether or not the high European prices would attract Middle Eastern volumes.

While prompt values are high, the paper market is steeply backwardated, increasing the risk that prices will have decreased by the time shipments arrive, thus exposing importers to significant potential losses. This risk is likely to keep a limit on the volumes imported until the pricing curve levels out somewhat, sources said.

“People talk about [increased imports from the Middle East], but I do not see it yet … with the strong backwardation, it is risky to bring tonnes in,” said a trader.

Further increasing the risks of importing are the high crude oil prices caused by the turmoil in North Africa and the Middle East, which in turn have boosted gasoline values.

Although European gasoline pricing has been comparatively stable in the last week or so, levels are still high and contribute significantly to the price of MTBE. Should the political situation in the region stabilise, particularly in Libya, crude prices could sharply correct downwards, sources warned, meaning a similar loss in value for related products, including MTBE.

“Of course everything is related back to crude, so the whole geopolitical scene will affect a lot of products, MTBE included,” said a second producer.  

($1 = €0.69 / $1 = CNY6.53)

For more on MTBE, visit ICIS chemical intelligence

By: Felicia Loo

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