China benzene import window reopens after five months

Focus story by Ong Sheau Ling

SINGAPORE (ICIS)–Import activity for benzene spot cargoes entering China has resumed, following five straight months of closure of arbitrage window because of cheaper domestic material, market players said on Friday.

Offers for June lots of South Korea origin, subject to 2% import duty were at $1,275-1,285/tonne CFR (cost and freight) China, LC 90 days, while July offers were at $1,260-1,275/tonne CFR China, traders said.

“Enquiries from both end-users and traders (from China) just started to flow in since early week,” a South Korea-based trader said.

A Singapore-based trader said: “Not just one buyer, but a few buyers [are] asking for both June and July parcels.”

One July cargo was booked for South Korea origin, subject to 2% import duty at $1,255/tonne CFR (cost and freight) China, LC 90 days on 8 May morning, while a first-half June parcel was sealed at $1,275-1,280/tonne CFR China LC 90 days on 8 May, they added.

Chinese import window has opened with a small differential between CFR China and FOB (free on board) Korea market at $15-25/tonne, just sufficient to cover the sea freight from South Korea to east China, industry players said.

At the close of the market on 8 May spot FOB Korea assessment for June loading was at $1,250-1,258/tonne, according to ICIS.

The higher CFR China buying ideas stemmed from the recent increase in the domestic prices in China, following consecutive gains in the local list prices quoted by country’s major Sinopec, Chinese players said.

On 9 May Sinopec announced to raise benzene list price by yuan (CNY) 100/tonne to 9,000/tonne ex-works across the country. The latest announcement leads to a total of CNY900/tonne increase in prices since 1 April.

This is equivalent to an import parity of $1,217/tonne CFR China, LC 90 days, according to ICIS.

On 9 May mid-day, June discussions were at $1,259-1,265/tonne FOB Korea, according to ICIS.

A June deal was heard at $1,290/tonne CFR China, LC 90 days, but parties could not be confirmed.

“Finally, China can import,” a China-based trader said.

A second China-based trader said: “End-users are coming forth to buy spot, especially [after] domestic availability has started to decrease from end April.”

Domestic supplies have been on the decline as a local major has cut its operations at its benzene unit by close to an average of 10%, while a couple of units were taken off line because of either poor co-product paraxylene (PX) margins or technical issues, market players said.

Besides, the alternative coal-based benzene supply has also tightened because of lower operating rates at such units in China, resulting in downstream end-users to seek spot cargoes abroad, they added.

On the other hand  prices on FOB Korea basis have recently declined, tracking the lower overseas markets, and hence, closing the gap to CFR China market, they added.

Average spot prices assessed in 1-8 May were at $1,277/tonne FOB Korea, down from average April spot prices at $1,240/tonne, ICIS reported.

“If the Chinese domestic prices continue to firm further, buying activity on CFR China basis will increase sharply,” a China based end-user said.

Appetite for spot cargoes by Chinese end-users is higher in 2014 as compared to 2013, as less term import volumes were contracted because of the higher premium offered by sellers attracting few keen Chinese end-users.

“This is good news to sellers, with the Chinese started to buy spot lots,” a South Korean producer said, adding that China is the next alternative outlet now, since Europe and the US have started to lose steam.

Some players expect that the Chinese domestic market will hit CNY9,500/tonne ex-tank by June, buoyed by the prevailing low inventories before new spot import cargoes arrive in June to July.

However, others are concerned if too many spot parcels were fixed to reach the Chinese shores, the tight supply condition will ease soon after, weighing on domestic prices and may shut the import window once more.

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