Asia MEK may spike amid open arbitrage window to Europe

16 August 2017 04:17 Source:ICIS News

cans of paint 16 August

SINGAPORE (ICIS)--Spot prices of methyl ethyl ketone (MEK) in Asia may spike on limited supply, with regional suppliers likely to divert cargoes to Europe.

Chinese MEK producers were seeking arbitrage opportunities in Europe, where prices have surged following Shell’s force majeure declaration in early August on supply from its plant at Pernis in the Netherlands.

“About 2,000 tonnes of Chinese material have already been sold to Europe in the last week,” a Chinese trader said.

Fresh spot MEK offers from China this week to southeast Asia are at about $1,160/tonne CFR (cost and freight), while those to northeast Asia are at around $1,140/tonne CFR, taking into account an exchange rate of $1 to CNY6.68, and freight rates of around $50/tonne and $30/tonne, respectively.

In the week ended 11 August, spot prices were assessed at $1,020-1,040/tonne CFR SE Asia and $1,000-1,020/tonne CFR NE Asia, according to ICIS data.

“Supply is already tight in domestic China, and local prices are sky-high this week, so supply will be limited in Asia as well,” said a China-based trader.

Chinese suppliers have raised their offers in light of the skyrocketing prices in Europe.

“My offer price for Asia will be at yuan (CNY) 7,400/tonne FOB (free on board) if I were to sell there,” a source at a major Chinese producer said.

In Europe, MEK spot prices in were heard to have soared to over €3,000/tonne FD (free delivered) NWE (northwest Europe), which is equivalent to about $3,500/tonne FD NWE.

“Supply in Asia may start to dwindle as Asia suppliers continue to tap the arbitrage opportunities to Europe,” a supplier said.

In light of the crunch in supply as Chinese suppliers target the lucrative European market, spot prices in Asia are expected to rise, despite sluggish demand.

Korean traders were also heard snapping up available spot products in anticipation of higher prices. However, Chinese suppliers were unwilling to sell to them, given the attractive margins for sales to Europe.

In spite of the spike in China-origin MEK prices, traders and importers are confident that they can source from other suppliers in Asia.

However, traders and end-users had earlier procured sufficient stocks to cover their September requirements.

“We are already covered for September and do not need to purchase MEK at prices above $1,040/tonne CFR SE Asia,” a SE Asian trader said.

Focus article by Koh Yuanlin

Asia MEK 16 August

($1 = CNY6.68)

Pictured above: Open paint cans. More than half of global demand for methyl ethyl ketone (MEK) comes from the paints and coatings industry. (Source: imageBROKER/REX/Shutterstock)

By Koh Yuanlin