FocusUS-Asia SM arbitrage window to stay closed on weak demand

22 March 2012 03:47  [Source: ICIS news]

By Clive Ong

US-Asia SM arbitrage window may not open soon on weak demandSINGAPORE (ICIS)--Arbitrage trade opportunities for styrene monomer (SM) may not open between Asia and the US for quite some time as weak demand is keeping prices at both markets under downward pressure, traders said on Thursday.

The window for SM arbitrage trade has been closed for months, given a very slim price differential US and China cargoes after taking into account shipping costs.

“The US-Asia arbitrage is currently impossible, as prices in the US and Asia are at near-parity, excluding freight,” said a Korean trader.

China SM prices are hovering at around $1,470/tonne (€1,117/tonne) CFR (cost & freight) this week, while US export prices were at US cents 68/lb FOB (free on board), or approximately $1,498/tonne, according to ICIS.

Spot freight rates are currently hovering in the $80/tonne levels for easy chemical ex-US to Asia, market sources said.

“Technically the arbitrage window is closed but producers in the US can and do make offers at times when stocks pile up over their end,” said a Singapore-based trader.

Supply in Asia is just snug as weak demand from downstream styrenics coincides with a number of plant turnarounds set in March and April.

Among those with scheduled maintenance at SM facilities include Nippon Steel, Asahi Kasei, Idemitsu in Japan and Samsung Total in South Korea, and some Chinese producers.

Asian SM buyers are also cautious about securing deep-sea cargoes, which are more open to price risks given longer delivery time, market sources said.

Weak economic conditions in the US and the eurozone, as well as lower GDP growth target announced by China last week, have dampened risk-taking activities in the SM market in Asia.

“The announcement by China last week that its GDP is expected to grow at under 8% this year has dampened sentiment and curtailed SM trade in Asia,” said a second trader in Singapore.

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

($1 = €0.76)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Clive Ong
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