08 February 2013 10:04 [Source: ICB]
As methyl-tertiary butyl ether prices rise, blenders seek cheaper alternatives such as naphtha for gasoline needs
Gasoline blenders in Asia have been shifting away from methyl-tertiary butyl ether (MTBE) to boost their fuel's octane level, preferring to seek alternative solvents that could be procured at cheaper costs, industry sources said.
Strong demand for gasoline in China is not boosting MTBE
"Gasoline prices are firming up and blending is good," a Singapore-based trader said. "It's just that MTBE is not used as the blending solvent."
The bulk of Asia's MTBE output goes into gasoline blending, with prices of the solvent usually tracking crude and gasoline values.
While MTBE may continue to increase in tandem with fuel prices, the pace of gains may slow because of poor demand from gasoline blenders, market players said.
"[The] market is literally dead now," a second Singapore-based trader said.
In southeast Asia, demand for MTBE for blending was subdued in the presence of more competitively priced naphtha, industry players said.
"We are even hearing more European naphtha coming over into Asia to meet this opportunistic demand," a third trader based in Singapore said.
On 31 January, the open-spec first-half naphtha contract was at $1,003/tonne cost and freight (CFR) NE (northeast) Asia, according to ICIS.
MTBE has been hovering above $1,000/tonne FOB Singapore for the past six months, and priced higher than naphtha since 2011.
In addition, a recent narrowing of the price spread between 92 RON and 95 RON gasoline to less than $3/bbl could not justify the use of expensive MTBE as a blending solvent, market players said.
SOLVENTS IN CHINA
At Asia's biggest gasoline consumer - China - blenders have started using reformate, mixed toluene and xylenes and other longer carbon chain solvents as alternative blending materials, partly on concerns that a consumption tax will soon be imposed on MTBE.
"What we hope is [for the government] to cancel the tax," said a Chinese trader, adding that even if the tax is postponed, the fear is still in the market that it will come in the form of a back tax.
The third Singapore-based trader said: "Apart from the tax issue, these alternative blending solvents are cheaper, [with] pricing at $900-1,050/tonne CFR China."
In China, spot MTBE prices were assessed at $1,184-1,186/tonne on a CFR basis by C1 Energy, an ICIS service in China.
"Gasoline demand in China is rosy, but MTBE is not benefiting [from] it," an MTBE producer said.
Driving season in the country is expected to pick up during the Lunar New Year holiday on 9-15 February, boosting gasoline consumption, he said.
"Hopefully, China's demand [for MTBE] will recover [post Lunar New Year]," the producer said.
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