10 January 2013 12:56 [Source: ICIS news]
By Jo Pitches
LONDON (ICIS)--While outbound naphtha arbitrages are currently open, relieving some of the oversupply that has been building in Europe for weeks, this could be short-lived, market participants said this week.
Sources emphasise that the outlook for the European naphtha market remains questionable.
ICIS reported on Tuesday that Asian naphtha prices are facing upwards pressure as a result of tighter supplies and increased Chinese petrochemical demand.
This has resulted in favourable economics for moving European volumes east.
“Yes, it’s [an arbitrage from northwest Europe to Asia] wide open,” a trader said on Wednesday. “The east-west balance for January is bid at $19/tonne.”
While dependent on factors such as freight rates, an east-west spread of $15-20/tonne is normally said to be necessary for an arbitrage to open east.
The source added that Asia’s Honam bought two to four 25,000 tonne cargoes for the second half of February.
An arbitrage is also open from the Mediterranean to Asia.
Given a lack of outbound arbitrage opportunities during the latter weeks of 2012, this was welcome news for the oversupplied European market.
However, participants stress that the northwest Europe market remains oversupplied.
On Thursday, a buyer said: “Arbs are open, but I haven’t seen movement yet. There will be activity, but probably just the usual volumes. The physical market in Rotterdam is very long. There are outages at crackers. Demand is OK, but not great, and stuff is coming [to northwest Europe] from the Med.”
A second trader agreed on Thursday that the oversupply persists and the increased activity could be temporary.
“There is still 600,000 tonnes to dispose of in Europe," the first trader said on Wednesday. “Vitol has 300,000 tonnes left [to sell], and the propane impact [surplus resulting from petrochemical buyers opting for cheaper rival feedstock propane] is around 300,000 tonnes, so we will see.”
Recent weeks have seen propane priced significantly below naphtha. This is extremely unusual for winter, when propane is usually in demand as heating fuel and prices are driven upwards. This year, a combination of relatively mild weather reducing requirements for propane, and increased LPG production from the Middle East and Africa is resulting in a long market and low prices.
On Thursday morning, propane was priced $60/tonne below naphtha for February, giving the former a clear advantage.
“Yes, propane is attractive to petchems,” the buyer said on Thursday.
“The outlook [for naphtha] is not optimistic,” the buyer added. “This [current interest in the product] could just be restocking.”
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