Rising SM prices in Asia open US-China arbitrage

27 July 2011 04:58  [Source: ICIS news]

SINGAPORE (ICIS)--A sharp rebound in Asia’s styrene monomer (SM) spot prices in recent weeks has opened an arbitrage window from the US to China, traders and brokers said on Wednesday.

Prices into China first rose above $1,500/tonne (€1,035/tonne) CFR (cost & freight) China on 20 July from around $1,380/tonne CFR China on 24 June. Subsequently, prices dipped below that level before again surpassing $1,500/tonne CFR on 26 July, according to ICIS data (see graph below).

“The sharp increase in prices since late June has given Asian traders the opportunity to bring in cargoes from the US,” said a broker in Singapore.

Some cargoes from the US were sold to China for late August and September arrivals over the past two weeks.

“Prices in the US have trailed China prices by some $60-80/tonne in recent weeks, so there is some chance of arbitrage,” said a trader in Singapore.

However, given the volatility of the energy and petrochemical markets this year, traders remained largely cautious, with many preferring not to take part in the current window.

Some traders deemed the $60-80/tonne spread insufficient to compensate for possible risks amid the uncertain global economic outlook.

“The outlook in Asia is uncertain, given the monetary tightening by the Chinese government, and the ongoing debt crisis in the US and the eurozone makes the market in the third quarter difficult to assess,” said a Korean trader.

Arbitrage cargoes from the US have been limited in Asia this year. Weak prices for SM since February as well as ample supply from the Middle East, Asia and China has kept the arbitrage window closed until recently.

SM is a chemical used to make plastic resins such as polystyrene (PS) and acrylonitrile-butadiene-styrene (ABS) as well as synthetic rubbers like styrene butadiene rubber (SBR) and styrene butadiene latex (SBL).

A US-China arbitrage window has been opened

($1 = €0.69)

For more information on styrene monomer, visit ICIS chemical intelligence

By: Clive Ong
+65 6780 4359

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