Strength in Asian naphtha drives sharp rebound in East-West spread in Sep

The naphtha front-month East-West spread -- the premium of the CFR Japan naphtha cargo swap over the CIF NWE equivalent -- has rebounded in September, widening $3.50/mt, or 34.88%, week on week to $14.50/mt at the Asian close Sept. 7, S&P Global Platts data showed.

The spread has widened from the Sept. 7 European close of $14/mt as brokers pegged it at $14.25/mt in midmorning Asia trade Sept. 8, Platts data showed.

The widening of the East-West spread since the start of the month signaled better arbitrage opportunity between Europe and Asia.

This may eventually lead to a pickup in chartering activity for the Europe to Asia naphtha arbitrage, which has seen a tepid pace of chartering for September-loading shipments. There were around 700,000 mt European naphtha cargoes booked for loadings Sept. 1-14 and slated to ship to Asia, according to market sources and data from Platts cFlow trade-flow analytics software. In comparison, the August loading program amounted to around 1.585 million mt, the data showed.

Naphtha arbitrage shipments from Europe to Asia typically take about a month to arrive if transiting via the Suez Canal, shipping sources said.

Asia's naphtha complex is expected to experience tighter Western arbitrage supply for October-arrivals following the halt in US Gulf Coast refinery operations in the wake of Hurricane Ida, which would see the region rely more on European arbitrage volumes to fill the former's net short. US Gulf to Asia naphtha shipments typically take 38-40 days to arrive if transiting the Panama Canal, and shipments from end-August loadings were expected to be affected by the severe weather.

Asian naphtha end-users had resumed purchasing activity for October delivery, which has boosted the sentiment. Also, steam crackers were expected to maximize utilizing naphtha feedstock as rival LPG was economically unviable, and positive olefins margins would keep steam crackers operating at high levels, sources said.

Reflecting a firm Asian market, the CFR Japan naphtha physical crack against front-month ICE Brent crude futures rose $4.25/mt day on day and $13.725/mt week on week at $129.825/mt at the Sept. 7 Asian close. The physical crack was last stronger on Aug. 13 at $131.275/mt, Platts data showed.