11 April 2012 17:02 [Source: ICIS news]
LONDON (ICIS)--Limited arbitrage opportunities in recent weeks are likely to result in less European naphtha heading to Asia during May, market participants said on Wednesday.
ICIS reported on 6 April that only 110,000 tonnes of deep-sea naphtha are scheduled to arrive in Asia in May, compared with 1m tonnes that arrived at the end of March and early April.
“Yes, less volumes are going in that direction if you compare it to March and April,” a producer in northwest Europe said. “Gasoline demand has pulled a lot of the volume in the Mediterranean and ARA [Amsterdam-Rotterdam-Antwerp] region. The market is still tight, the arb has been closed.”
A narrow east-west spread has recently reduced the volumes heading east.
On 5 April the east-west price spread was around $4.25/tonne (€3.23/tonne). While dependent on factors such as freight rates, a spread of around $15/tonne is often cited as the difference required for an arbitrage to open from northwest Europe to Asia. The consensus was that it was only possible to send certain grades of naphtha east, particularly heavy naphtha and light naphtha.
However, the producer pointed out that it is too early to accurately calculate volumes arriving in Asia in May.
“Remember that we are not done with May yet in Asia, so there can still be more volumes being locked in that way.”
Furthermore, the east-west spread widened on Wednesday.
“East-west has come out a bit today. We’re talking [a spread of] $7.50/tonne for May. It’s not open, but we’re getting there.”
It is difficult for sources to predict whether the spread will continue to widen and open the arbitrage. However, despite an expectation that Asian crackers will switch to cheaper liquified petroleum gas (LPG) feedstock instead of naphtha during the summer months, the producer believes Asia will still require European volumes.
“I think they will have a need for European naphtha, the question is when they will realise it,” the source said.
$1 = €0.76
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