Asia MTBE to be buoyed by arbitrage flows, supply cutback

Author: Keven Zhang

2020/09/16

SINGAPORE (ICIS)--Asia's methyl tertiary butyl ether (MTBE) prices were supported by stronger demand as buyers were attracted to low prices, while the near-term market is expected to stay buoyed by arbitrage flows and supply disruption.

Spot prices on a free-on-board (FOB) Singapore basis dropped to a three-month low of $388/tonne on 9 September, and have bottomed out since then.

ICIS Editorial Chart goes hereSINGAPORE TO CHINA ARBITRAGE POSSIBLY OPEN
Singapore’s gasoline blending market has been subdued since July as the spread between 92 and 95 RON (research octane number) gasoline was suppressed.

MTBE is mainly used as an octane-boosting additive in gasoline.

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Very limited interest was seen among Singapore’s blenders to buy spot MTBE cargoes, resulting in accumulation of tank inventory in Singapore and Malaysia.

In order to manage high MTBE inventory, cargo owners in Singapore continued to offer on an FOB Singapore basis. Offers and deals were at around $398-400/tonne FOB Singapore this week.

With lower freight costs of around $30/tonne for a 5,000-tonne cargo from Singapore to China, the CFR China-equivalent price was about $430/tonne.

China’s buying indications were at $420-425/tonne CFR China, for cargoes arriving before October.

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Despite the potentially workable price, cargo logistics were a concern, as the shipper needed to stock up to 5,000 tonnes of MTBE in one terminal, while most commonly traded volumes in Singapore are only 2,000-3,000 tonnes.

MIDDLE EAST TO CHINA ARBITRAGE WIDE OPEN
In the meantime, Middle East producers continued to sell cargoes directly in large vessels carrying at least 10,000 tonnes of MTBE. Large quantities helped to reduce the freight cost on a per-tonne basis.

In the earlier part of the week, some 10,000 tonnes of Middle East-origin cargoes were traded at prices between $425-430/tonne CFR south China.

While prices seemed workable, long sailing times could be a constraint for the trade to happen.

China’s demand focused on October-arriving cargo, due to a long festive period in early October with high anticipated gasoline consumption.

On the producer’s side, they could only offer October-loading cargoes which were mostly arriving in November. For buyers, November prices were in backwardation to October while market uncertainty also increased for a more forward time window.

SUPPLY DISRUPTION IN SEPTEMBER
Asia’s production in September will be curbed due to turnarounds in northeast Asia.

South Korea’s S-Oil has shut its fluid catalytic cracker (FCC) and MTBE unit in early September for four weeks.

Taiwan’s Formosa Petrochemical Corp has shut one of its two MTBE units and Formosa Plastics Corp has shut its only MTBE unit for maintenance.

Focus article by Keven Zhang

Photo: At a gas station in Luoyang city, central China.
(Source: Shutterstock)

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