China stops MTBE re-exports because of rising domestic demand

01 August 2011 04:40  [Source: ICIS news]

By Felicia Loo

SINGAPORE (ICIS)--Chinese market players have reversed a rare move to resell bonded cargoes of methyl tertiary butyl ether (MTBE) because domestic demand for gasoline fuel is picking up, traders said on Monday.

A major Chinese seller withdrew its offer to sell 4,000 tonnes of bonded MTBE last week.

The seller’s initial offer stood at $1,140/tonne (€787/tonne) FOB (free on board) China, the traders said.

Around 10,000-12,000 tonnes of MTBE material were being resold into the Singapore market in recent weeks at $1,120/tonne FOB China, or equivalent to $1,165/tonne CFR (cost & freight) Singapore, the traders added.

The cargo was subsequently sold at $1,140/tonne FOB China or $1,185/tonne CFR Singapore, the traders added.

“MTBE demand in China seems to be picking up,” a Chinese trader said.

Domestic MTBE prices in China were assessed as higher at yuan (CNY) 8,500-8,600/tonne ($1,320-1,335/tonne) last week compared with CNY8,400/tonne the week before.

Buying ideas were at CNY8,400-8,500/tonne, while selling indications were at CNY8,600-8,700/tonne, the traders said.

China, the world's top energy user, imports gasoline despite being a net gasoline exporter and major Chinese refiners source the motor fuel from private blenders, the traders added.

“The [country’s] gasoline stockpiling activity will heighten in September, ahead of the Golden Week holidays in October,” a trader in China said.

There will be hundreds of thousands of motorists on the roads during Golden Week, which is a week-long holiday celebrating China's National Day.

Passenger car sales in China rose by 6.21% year on year to 1.11m units in June, according to the China Association of Automobile Manufacturers (CAAM).

Overall gasoline demand remains stable in China, although the Chinese government is tightening credit to combat inflation, industry players said.

Chinese market players were earlier compelled to resell MTBE overseas because of weak domestic consumption, the players said.

In addition, a price rally in regional trading hub Singapore was a magnet for the distressed barrels.

The price spread between 97-octane gasoline and 92-octane gasoline widened by $1.70/bbl to $7.10/bbl in early July, signalling a healthy demand for blending as the spread was well above the break-even level of $6.00/bbl.

It is unusual for China to re-export MTBE as the country is net buyer of the octane booster, the traders said.

A major Chinese oil company imported only 10,000 tonnes of MTBE from late June this year to early July, down from a monthly average of 30,000 tonnes because of poor demand, the traders added.

Last month, Asia’s top refiner Sinopec issued stricter specifications on buying gasoline from private domestic blenders in China after engine troubles surfaced repeatedly from late April to May.

Sinopec has been tightening the quality control on sourcing gasoline from private blenders since 21 May, which includes reducing the olefin content in gasoline from 30% to just above 8%.

Sinopec outsources around 14% of its gasoline requirements from independent refineries, traders or blenders.

Benchmark prices of MTBE in Singapore are expected to increase partly because of China’s move to stop MTBE re-exports.

Prices were assessed at $1,130-1,135/tonne FOB Singapore during the week ending 29 July, up by $5-10/tonne, according to data from ICIS.

Prices on a CFR China basis rose by $40-60/tonne to $1,080-1,120/tonne during the same week.

($1 = €0.69, $1 = CNY6.44)

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By: Felicia Loo

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