Asia MTBE supply-demand imbalance to remain amid slow demand recovery

Author: Keven Zhang

2020/09/29

SINGAPORE (ICIS)--Asia’s methyl tertiary butyl ether (MTBE) outlook appears bearish, with slow demand and long supply expected to continue and will likely maintain in relatively close correlation with the gasoline and crude oil markets in the near term.

In the week ended 25 September, spot prices fell in the first half of the week and rebounded by the end of the week, tracking crude oil price movements.

The price rebound, however, saw resistance from downstream end-users towards firm outright prices, thus leading to lower premium levels seen for trades in the Singapore market.

Spot cargoes for October arrival were heard traded at an average of FOB (free on board) Singapore prices with a premium of slightly under $10/tonne on a CFR (cost & freight) Singapore basis, compared with premiums of $10-15/tonne in the week earlier.

A 5,000 tonne cargo headed for Malaysia was traded at average FOB Singapore value plus a premium slightly above $15/tonne on a CFR Malaysia basis. Some short-covering activity was seen in the market due to an upcoming plant turnaround in the Middle East and southeast Asia.

The weekly spot FOB Singapore prices were at an average of $424.5/tonne in the week ended 25 September, according to ICIS data, while an offer for an October FOB Singapore paper contract stood at $418/tonne, reflecting a backwardation between the September and October market.

ICIS Editorial Chart goes here

On the downstream front, Asia’s gasoline crack spread was strong, as the market drew support from arbitrage outflows. Despite a slow recovery from the coronavirus pandemic on a global scale, the gasoline market saw demand from regions such as north Africa and south America.

However, a few developing factors could see lower MTBE usage in gasoline blending.

As the weather turns colder, more regions are expected to favour gasoline with specifications suitable for winter usage. During the colder period, gasoline blenders typically have lower blending demand for MTBE and switch to components with higher vapour pressure such as C5.

A widening gasoline crack spread also may stimulate the operating rates at refineries. Refineries that produce more finished-grade gasoline could reduce their dependency on blended gasoline.

Thirdly, margins for octane blending remained below levels deemed profitable, amid a narrower price spread seen between 95 and 92 RON gasoline and the spread between naphtha and 92 RON gasoline.

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More importantly, China’s import volumes could be reduced by the closure of arbitrage window seen since two weeks ago. Earlier purchases of October-arrival cargoes may result in a supply overhang in November if China becomes self-sufficient for MTBE.

The chart below shows the arbitrage between Singapore and China remains closed in the week ended 25 September. The level for the arbitrage to open is $35/tonne.

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Focus article by Keven Zhang