21 September 2012 11:05 [Source: ICB]
Downside potential for Asia methyl tertiary butyl ether (MTBE) prices is likely to be limited, because of high energy prices and fewer European and Arab Gulf arbitrage cargoes, despite weaker demand, industry sources say.
Increasing crude oil prices are pushing up MTBE production costs
"Fundamentally, MTBE prices track closely to crude. Based on this week's energy price trend, it is evident that MTBE prices are on the climb," a producer based in the Arab Gulf said. A Singapore-based trader said: "[MTBE] prices are rising now, primarily driven by cost [as crude futures gain strength]."
Sentiment in the energy markets was expected to improve following the announcement of a stimulus package by the US Federal Reserve, a second trader based in Singapore said.
"So, we may not see the cost [of MTBE production] coming down anytime soon," the trader added.
The higher gasoline prices in China have also lifted prices ideas of MTBE, traders said. MTBE is used as an additive to boost octane levels in gasoline.
The Chinese government has increased gasoline prices by yuan (CNY) 550/tonne ($87/tonne). With the hike, the national average retail price of 90-RON (research octane number) gasoline has reached CNY9,640/tonne, effective from 11 September.
On 14 September mid-day, ex-terminal barge prices of MTBE in southern and eastern China rose to CNY9,350-9,450/tonne and CNY9,150-9,250/tonne respectively, up by CNY50-100/tonne from last week, according to C1 Energy, an ICIS service in China.
The widening in the inter-RON spread between 97-RON (research octane number) and 92-RON gasoline to $6.75/bbl on 13 September from 6 September's level of $1.60/bbl also lifted blenders' confidence slightly, traders said.
The US Federal Reserve announced late on 13 September a new version of quantitative easing, QE3 and extended its low-rate policy to mid-2015.
On the supply front, fewer spot arbitrage cargoes originating from Europe and Arab Gulf in October kept Asia's spot availability balanced-to-tight, traders said.
"We did not receive many spot offers for October delivery [from Europe and Arab Gulf]," a Chinese trader said.
In MTBE's key downstream market - gasoline blending, demand for October procurement has slowed down as both China and Singapore-based gasoline blenders have their October requirements largely covered.
"Demand is waning: there are no enquiries [for new MTBE cargoes] from China this week," another Singapore-based seller said.
Many Chinese gasoline blenders have already procured sufficient MTBE material in preparation for peak travelling season in early October. The Mid-Autumn Festival and the country's National Day fall within the month and more cars are expected to be on the road.
"November and December is the traditional seasonal demand lull for MTBE. Appetite for fresh MTBE will be smaller," another Chinese trader said.
A northeast Asian buyer said: "Looking at the expected decline in gasoline blending activity [in Asia] by the end of this year, the weaker demand may cap the price gains [in MTBE] even though the costs stay high."
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