asia

Europe-Asia naphtha arbitrage slips to 3-month low for August loadings on tight supply – S&P Global


Highlights

September East-West spread shrinks to over 8-week low on lower Asia demand

Expect heavy naphtha demand into aromatics extraction to decline in Q3: Platts Analytics

End-users seek alternate supplies from Americas to ease tightness

Tepid interest for Europe-Asia arbitrage sees freight levels remain rangebound

Tight supply in Europe has decreased the flow of arbitrage naphtha into Asia for the second consecutive month for the August loading program, and the upcoming volumes for the September loading program is slated to remain thin due to a decrease in demand from Asia’s end-users for October.

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August-loading Europe to Asia naphtha shipments were 1.585 million mt, down from 1.64 million mt for July-loaded volumes, according to data from market sources and S&P Global Platts cFlow data. This has brought Europe to Asia shipments to a three-month low for the August loading program, Platts data showed. In comparison, the June loading volumes were 1.8 million mt which was around a two-year high, while May volumes were 1.265 million mt.

“The recent drop in loadings from Europe to Asia is in line with our projections of weaker demand in September-October primarily from the South Korean olefins sector,” said Eshwar Yennigalla, senior analyst at Platts Analytics.

The lower volumes could continue for the September loading program, as the key spread between front month September naphtha C+F Japan cargo versus CIF NWE cargo had dropped from $12/mt at the Asian close Aug. 26 to $11.50/mt at the European close on Aug. 26, which was over an eight-week low, Platts data showed. The spread was last at this level on June 29’s European close.

“For October, we project South Korean demand for naphtha to drop by close to 10% to 1.27 million b/d as a result. We expect heavy naphtha demand into aromatics extraction to decline on the quarter in Q3 2021, while the weaker outlook extending into October amid weakening downstream margins,” said Yennigalla.

This crunch in the East-West spread was due to a weaker naphtha market in Asia, due to lower demand for the October delivery cycle because of a major scheduled turnaround. LG Chem’s Daesan steam cracker, which can produce 1.2 million mt/year of ethylene and 450,000 mt/year of propylene, will undergo maintenance.

Asia demand falls for October

Asia’s naphtha market had seen the cash differential for CFR Japan spot naphtha parcels with a minimum 65% paraffin content rise from over an eight-month low of minus $2/mt on Aug. 23, against benchmark Mean of Platts Japan naphtha physical, Platts data showed.

This had end-users in no hurry to move for first half October purchasing, and tenders from petrochemical makers for cracker-feed naphtha only emerged on Aug. 24, even though the trading cycle had begun on Aug. 16.

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The start of trading activity had since led to a slight recovery in the CFR Japan cash differential, which was last assessed at minus 25 cents/mt on Aug. 26, Platts data showed.

Tepid chartering activity for arbitrage

Chartering activity was ongoing for the September-loading program, with six Long Range II tankers slated to load around 480,000 mt of naphtha, booked for Europe to Asia naphtha cargoes loading over Sept. 1-14, said sources.

Europe to Asia arbitrage from the September program are likely to remain slim as not only was there less cargo requirement from Asia in October, but also limited availability of cargoes from Europe. Europe’s petrochemical makers were still maximizing use of naphtha as a cracker feedstock due to the high price of rival feedstock LPG.

Asia’s naphtha end-users are also able to seek supplies from the American continent, from which the August loading shipments had risen month on month, easing some of the supply constraints faced by end-users importing from Europe, Platts data showed.

“September-arrival Western arbitrage is around 2.5 million mt, this is due to more US Gulf coast shipments,” said a Singapore-based naphtha trader.

The tepid interest for the Europe to Asia arbitrage moves saw freight levels remain rangebound for the LR2 Mediterranean-Japan voyage, which was had averaged at $1.649 million over Aug. 2-26, and was last assessed at $1.625 million on Aug. 25-26, Platts data showed.

A naphtha cargo from Europe typically takes around a month to arrive in North Asia, if the vessel transits via the Suez Canal, shipping sources said.


Europe to Asia naphtha fixtures


Vessel


Quantity (‘000 kt)


Cargo


Laycan


Voyage


Freight


Charterer


BW Galatea


80


NA


Aug30


Novorossiysk-Japan


$1.75m


Litasco


STI Lobelia


80


NA


Aug28


Tuapse-Japan


$1.875m


ATS


BW Yarra


60


NA


Aug28


Huelva-Japan


$1.6m


Cepsa


BW Neso


80


NA


Aug27


Ust Luga-Japan


rnr


Novatek


STI Rose


80


NA


Aug18


Novorossiysk-Japan


$1.75m


Bgn


King Philippos


80


NA


Aug16


Tuapse-Japan


$1.75m


Trafigura


STI Broadway


80


NA


Aug16


Skikda-Japan


rnr


cnr


Sea Shell


90


NA


Aug14


ARA-Japan


$1.85m


Vitol


Navig8 Gallantry


35


NA


Aug13


Skikda-Yanbu


$625k


Total


Front Panther


80


NA


Aug10


Ust Luga-Japan


$1.875m


Novatek


Sunda


60


NA


Aug10


Huelva-Japan


$1.6m


Cepsa


Prostar


80


NA


Aug10


Skikda-Japan


Own Prog


Stasco


BW Neso


80


NA


Aug10


West-East


rnr


cnr


Navig8 Promise


80


NA


Aug10


Tuapse-Japan


$1.8m


Bp


Alburaq


80


NA


Aug10


Greece-Japan


$1.6m


ATS


Alpine Confidence


80


NA


Aug8


ARA-Japan


$1.7m


Vitol


Al Ruwais


80


NA


Aug7


Black Sea-Japan


$1.75m


Trafigura


STI Elysees


80


NA


Aug6


Novorossiysk-Japan


rnr


cnr


Pacific A Dorodchi


80


NA


Aug4


Skikda-Japan


$1.575m


Total


BW Yangtze


60


NA


Aug1


Kavkaz-Brazil, Japan


w90, $1.675m


Trafigura


Clearocean Ajax


80


NA


Jul31


Skikda-Japan


$1.6m


Trafigura


Ellie Lady


80


NA


Jul30


Tuapse-Japan


$1.8m


ATS


STI Goal


80


NA


Jul29


Skikda-Japan


rnr


cnr


Sauger


60


NA


Jul27


Huelva-Japan


$1.55m


Cepsa


Zaliv Amurskiy


80


NA


Jul25


Novorossiysk-Japan


$1.775m


Litasco


BW Thalassa


85


NA


Jul25


Novorossiysk-Japan


$1.8m


Bp


STI Goal


85


NA


Jul25


Skikda-Japan


$1.6m


Shell


Navig8 Passion


90


NA


Jul22


Tuapse-Japan


$1.85m


Socar


Scirocco


60


NA


Jul18


Huelva-Japan


$1.5m


Cepsa


SKS Dee


80


NA


Jul15


Skikda-S Korea


$1.7m


Pantos


BW Larissa


80


NA


Jul14


Skikda-Japan


$1.7m


ATS


Khawr Aladid


90


NA


Jul13


Tuapse-Japan


rnr


cnr


STI Experience


60


NA


Jul12


Novorossiysk-Taiwan


rnr


cnr


Front Vega


80


NA


Jul10


Skikda-Japan


$1.9m


Total


Lady Henrietta


80


NA


Jul7


Skikda-Japan


rnr


cnr


Sea Beauty


80


NA


Jul2


ARA-Japan


$1.7m


Vitol


BW Kallang


60


NA


Jul2


Huelva-Japan


$1.5m


Cepsa


SKS Douro


80


NA


Jul2


Agioi-Japan


$1.775m


Trafigura


Minerva Aries


80


NA


Jul1


Tuapse+Taman-Yeosu


$1.915m


Bp


Ghibli


80


NA


Jul1


Eleusis-Ulsan


$1.775m


ATS

Key: NA= naphtha, rnr= rate not reported, cnr= charterer not reported


Source: Industry sources, S&P Global Platts cFlow



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