Home / Commodities / Freight News / Higher USGC-North Asia naphtha arbitrage flows set to continue for next 1-2 months

Higher USGC-North Asia naphtha arbitrage flows set to continue for next 1-2 months

The robust flow of US Gulf Coast naphtha into North Asia is slated to continue for the next couple of months, amid a loss of blending demand from the depressed US gasoline market due to the coronavirus pandemic and cheaper MR freight costs, trade sources said this week.

“Volumes from the USGC are increasing — a lot of Japanese crackers and splitters are seeing a lot of US cargoes because US C5 [natural gasoline] price and USGC-Japan MR freight is relatively cheap, which has opened the arbitrage,” a naphtha trader said.

“It would take a longer time for the US gasoline market to recover, so the situation would continue for at least one to two months,” the source added.

Moreover, a recent downturn in USGC MR freight rates has reinforced arbitrage interest, and charterers are sourcing vessels for USGC-Far East voyages loading over H2 April.

“Freight is high especially for LR1 and LR2 because of floating storage demand, but MRs are relatively cheap especially from USGC because US refineries have cut operation rates,” a Japan-based naphtha trader said.

The MR USGC to Northeast Asia voyage was last assessed at $1.365 million Tuesday, while LR1 freight was last assessed at $2.85 million, Platts data showed. Such voyages typically take 33-35 days, and could see delays due to fog in the USGC.

While US arbitrage volumes are not as high as December and January arrivals, which were around 600,000 mt, shipping fixtures showed 500,000 mt of April-loading naphtha cargoes from the Americas are headed to Asia, higher than the 228,000 mt spotted for March-loading cargoes. Furthermore, market sources said a handful of ships are chartered under the radar each month for such voyages.

Around 100,000-200,000 mt of heavy full range naphtha come to Asia from the US monthly, with incremental cargoes — typically light naphtha — of around 250,000 mt shipped monthly, trade sources said.

“The US needs to send light naphtha East because there is reduced gasoline blending demand,” a North Asian end-user said.

Asia will also receive high volumes of naphtha from Europe, and traders said total May-arrival Western arbitrage volumes would be over the key 2 million mt level and could reach 2.4 million mt.

“The gasoline-naphtha spread is very bad, so gasoline blending is not pulling much naphtha these days, so there are more surplus cargoes in the West,” a Singapore-based naphtha trader said. The Singapore reforming spread, which is the difference between FOB Singapore 92 RON gasoline swaps and FOB Singapore naphtha derivative, had dropped to an average $5.58/b in March, down from $11.90/b averaged in February, Platts data showed. So far in April, the spread has averaged $4.77/b.

Most Western arbitrage volumes consist of heavy full range naphtha, which is over-supplied in Asia and augmented by ample condensate cargoes. Supply is also healthy for Asian steam-crackers requiring light or paraffinic naphtha grades for petrochemical production.

In Asia, end-users were in no hurry to cover H2 May requirements due to the influx of Western arbitrage cargoes and uncertain downstream demand due to COVID-19.

The Asian naphtha paper market has been weighed down and pushed into a contango structure since March 13, Platts data showed. The balance month April/May Mean of Platts Japan naphtha swap timespread was last assessed at minus $16.25/mt at Tuesday’s Asian close.

The uncertain global economic outlook left end-users unsure on operating rates for upcoming months although naphtha flat prices were at attractive multi-year lows.

The benchmark naphtha C+F Japan cargo was last assessed at $198.25/mt at Tuesday’s Asian close, up from the 18-year low reached on April 1, when it was assessed at $165.876/mt, on the back of the recent upswing in the crude complex.

“Right now we are in the situation that the absolute price is indeed low, but we are concerned about the overall demand of our [downstream] products. Fortunately, there is some time lag [compared with the fall in] feedstock prices, but at the rate it’s going, with so many places in lock down or state of emergency, it is not a very clear picture overall,” a naphtha trader said.

Naphtha fixtures from the Americas to Far East:
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping