October-loading US-Asia arbitrage naphtha falls 85% on month

04:52' PM - Thursday, 15/10/2020

The arbitrage window to move naphtha from the US Gulf Coast to Asia, which has been shut since late September, has quietened chartering activity for the voyage this month as the number of fixtures for October-loading cargoes have declined dramatically compared with September.

In second-half September, 354,000 mt of USGC naphtha was shipped to the Far East, destined to arrive over end-October to the first decade of November, data from market sources and cFlow, Platts trade-flow software, showed.

Comparatively, only one to two October-loading cargoes were booked for the voyage so far. Vitol booked the STI Excellence to lift 60,000 mt of naphtha for a USGC to Far East voyage, which loaded Oct. 3 and P66 booked the MP MR tanker 1 to lift 38,000 mt of naphtha for a USGC to Trans Atlantic voyage with options for a Far East discharge, loading Oct. 16, industry sources said. The Oct. 16 cargo is unlikely to end up in the Far East, sources said.

As a result, October-loading naphtha from USGC to Asia is just 60,000 mt, or 84.6% lower than the overall shipments in September which stands at 389,000 mt, Platts data showed.

FREIGHT HINDERS ARBITRAGE

Traders may have limited opportunity to resume such arbitrage shipments, for while the cargo spread between benchmark naphtha C+F Japan and FOB US Gulf Coast is in positive territory, both the MR and LR freight levels have kept the arbitrage economics unviable over Sept. 25-Oct. 8, Platts data showed.

An uptick in the FOB US Gulf Coast naphtha since the start of the week ending Oct. 16 has led to the cross-regional spread minus MR freight to slip back into negative territory on Oct. 14, at minus $2.175/mt, Platts data showed.

Benchmark physical C+F Japan naphtha was last assessed at $399.875/mt at the Oct. 14 Asian close, down $4.75/mt on the day, while FOB US Gulf Coast naphtha cargo was last assessed at $368.50/mt, up $4.75/mt on the day, Platts data showed.

For the US Gulf Coast to Northeast Asia voyage, MR freight has fallen from $1.5 million on Oct. 1 to $1.275 million on Oct. 14, Platts data showed.

Asia's naphtha end-users have been keenly watching Western arbitrage inflows, as the previous influx of H2 September-loading USGC cargoes had eased some supply tightness.

Furthermore, two naphtha cargoes were reportedly fixed from Peru on MR tankers Doric Courage and Garnet Express, Platts cFlow showed.

Reflecting the additional supply, cash differentials for spot paraffinic naphtha parcels averaged at $5.34/mt over Sept. 26-30 and has fallen to average $3.325/mt over Oct. 1-14, against benchmark Mean of Platts Japan naphtha physical assessments, CFR Japan basis, Platts data showed.

ASIAN BUYERS SEEK HIGH PARAFFIN NAPHTHA

Due to positive olefin margins, Asian end-users currently prefer to use naphtha with high paraffin content of around high-70% or 80% -- which is tight on supply -- but there is an ample supply of naphtha with minimum 65% or 70% paraffin content weighing down trading sentiment, industry sources said.

"Olefin margin is quite good, so everyone is looking for high paraffin naphtha other than Western cargoes, and there is a high escalation for paraffin," an Asian naphtha end-user said.

Asian market participants said there is a significant escalation between the price of naphtha with minimum 65% paraffin and naphtha with minimum 70% paraffin due to naphtha-fed steam crackers' preference for high paraffin feedstock, and that most Western arbitrage cracker-feed cargoes had paraffin content of around minimum 65% content. - Platts -

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