FocusAsia naphtha market gets relief from arbitrage window closure

23 August 2013 06:07  [Source: ICIS news]

By Felicia Loo

Asia naphtha market gets relief from arbitrage window closureSINGAPORE (ICIS)--Asia’s naphtha market is getting some relief from further inflows of surplus deep-sea cargoes, now that arbitrage economics to move western material eastwards are no longer viable, traders said on Friday.

Confirmed arbitrage naphtha flows to Asia for September are seen at 1.0m-1.3m tonnes, they said, down  from the initial estimate of 1.4m tonnes, including provisional bookings.

The September-arrival volumes will be largely similar to the 1.2m tonnes of material flowing into Asia for the whole of August.

“The physical [market] is getting weaker by the day. It’s looking for support in the fourth quarter with Europe refinery turnaround,” said one trader.

However, the voluminous supply is more than what Asia could absorb given a spate of current and impending cracker shutdowns, traders said.

“The East is struggling with all the oil. The September physical [naphtha cargoes] will roll into October,” said another trader.

Open-spec first-half October/first-half November naphtha contracts spread narrowed to $3.00/tonne (€2.25/tonne) in backwardation at the close of trade on Thursday from $3.50/tonne on Wednesday, ICIS data showed.

The intermonth spread has shrunk from a backwardation of $5.00/tonne on 19 August, it stated.

Despite higher global crude futures, naphtha gains were capped, with the first-half October contract rising by $1/tonne at the upper end to $925.50-928.50/tonne CFR (cost & freight) Japan on Friday, according to ICIS data.

The tightening of the east-west spread suggested the closure of the arbitrage window, that brought some support to the market, which was being weighed down by excessive cargo availability, traders said.

“At least the relief now is that the arbitrage [window] is shut, so the arbitrage supply doesn’t get flooded in the east,” said the first trader.

The east-west spread was valued at slightly more than $12.00/tonne, traders said.

The spread previously peaked at around $22.00/tonne before sliding to $15.00-17.00/tonne, and then to $12.00-13.00/tonne over the past week, they added.

Of concern is the weakening of spot demand as maintenance at key crackers sets in, traders said.

South Korea’s second-largest refiner GS Caltex plans to shut its 90,000 bbl/day naphtha splitter in Yeosu on 1-25 October for regular maintenance.

Taiwan’s Formosa Petrochemical Corp will shut its 1.03m tonne/year naphtha cracker in Mailiao from mid-September to end-October, while Japan’s Mitsubishi Chem will shut its 489,000/tonne naphtha cracker in Kashima for a 50-day turnaround from end-August.

Further undermining demand is an outage at JX Nippon Oil and Energy’s naphtha cracker in Kawasaki, Japan. The 460,000 tonne/year cracker was shut on 19 August because of a technical problem and is likely to be shut for at least 10 days.

($1 = €0.75)

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


By: Felicia Loo



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