Waning Asian chems demand and buoyant EU, US markets opens up arbitrage

SINGAPORE (ICIS)–Several major Asian petrochemical markets are seeing fresh opportunities to export to buoyant European and US markets amid sluggish regional demand as COVID-19 restrictions continue to weigh on consumption.

The slow pace of vaccination rollouts in Asia has hampered the economic recovery and delayed the re-opening of regional economies.

In the fatty acids market, EU demand for C18 oleic acid remains strong while demand in Asia has waned due to the virus resurgence and renewed lockdown restrictions.

A regional fatty acids producer in southeast Asia said that it may consider exporting bulk shipments to the EU, given the surge in container freights.

“Bulk freight would be about $150/tonne compared to containers at $400/tonne to EU but there are still other costs such as demurrage, tank storage and local delivery costs. Nonetheless, it is still a better proposition,” the regional producer said.

Meanwhile, an open arbitrage for Group I base oils from Asia to Europe has developed following the spike in European prices from February to May.

There had been instances of southeast Asian Group I tenders for SN500 and brightstock being awarded at significantly higher prices than Asia workable levels in May, with the cargoes likely taken to Europe by traders to take advantage of the arbitrage opportunity.

However, Group I trade flows from Asia to Europe resulting from the open arbitrage did not seem to have gained much traction in June, probably because of limited spot availability in Asia while European prices have also begun to stabilise.

As for Group III base oils, some Asian refiners are keenly watching the market and they may allocate more term volumes to Europe or the US if the arbitrage window were to stay open for an extended period of time.

In the MTBE market, Middle East swing sellers are more keen to sell to Europe which offers better prices on delivered basis, with a similar freight cost as to Asia.

In June, 10,000 tonnes of MTBE cargoes were sold to Europe from a Middle Eastern producer, after some offer attempts to Asia without attractive bids from buyers.

In the methyl methacrylate (MMA), prices in Europe and the US are currently much higher than Asian spot prices, opening up arbitrage opportunities.

Supply is tight in US and Europe due to recent force majeure and plant outages, spurring demand for Asian and Middle Eastern cargoes.

Asian MMA supply is also tight due to recent turnarounds, so bulk spot cargoes are very limited while isotanks are more available.

However, tight isotank availability, high freight costs and logistical issues are curbing MMA exports to the West currently.

A trader said: “Iso container [shipping] is continuously difficult, will make price difference in [different] regions wide. European price gap will be wide from Asia, due to freight cost.”

Demand in Asian have slowed down due to the off-peak season, resurgence of coronavirus cases, lockdowns and restrictions, but Asian MMA suppliers have no incentives to drop prices amid tight supply and higher selling prices to Europe and the US.

In the butadiene (BD) market, the disruption in supply chains following the winter storm earlier in mid-February have supported prices alongside a recovery in demand, according to ICIS analyst Ann Sun.

In past years BD trade flow was from Europe to the US and Asia, while Asia SBR went to the US.

“The demand outpaces the supply across the BD value chain, which made the US has been the highest priced market,” Sun said.

“On the back of this, we have seen BD exports from Asia to North America from May. This might extend into July and August,” she said.

With additional reporting by Chng Li Li, Keven Zhang, Helen Yan and Matthew Chong

(Image: Container ship at a Chinese port; Source: Photo by Xinhua/Shutterstock)

Focus article by Nurluqman Suratman