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USGC-Asia isomer-MX arbitrage unlikely to re-open soon on plunging economics

  • Author
  • Michelle Kim
  • Editor
  • Irene Tang
  • Commodity
  • Petrochemicals

The US Gulf Coast-Asia arbitrage for isomer-grade mixed xylenes on paperdoes not appear to be re-opening any time soon, as arbitrage economicscontinued narrowing, plunging to a five-month low Tuesday, Platts data showed.

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"The US-Asia isomer-MX [arbitrage] doesn't seem to be re-opening inshort term, as [the] US market seems to be stable or firm, while Asia marketis weaker at the moment," a trader said Wednesday.

The spread between Asia's benchmark CFR Taiwan and FOB USGC isomer-MXprices plunged to a five-month low of minus $84.06/mt Tuesday, down $22.30/mtfrom the previous day, Platts data showed.

Its last low was at minus $104.05/mt on September 19, 2012.

Traders have been eyeing the re-opening of the arbitrage on paper sincemid-February with the easing of USGC isomer-MX prices, which fell from afive-week high of 466 cents/gallon ($1,411.98/mt) on February 11 to athree-month low of 442 cents/gal on March 4. This saw the Asia-USGC spreadrising in tandem to a four-week high of $21.09/mt on February 26. But arbitrage economics have since narrowed, flipping into negativeterritory on March 1, falling to minus $61.76/mt Monday as a sluggishdownstream paraxylene market in Asia pulled down isomer-MX prices. Falls were further extended Tuesday, after the USGC price rallied 10cents/gal to be assessed at 452 cents/gal, against a more gentle day-on-dayrebound of $8/mt in the CFR Taiwan isomer-MX price. For arbitrage economics to be workable, the Asia-USGC spread should beabove $50/mt, based on a term charter freight rate from USGC to South Koreaand Taiwan.

Spot freight rate for the same route is currently heard at $75/mt for a5,000-mt BTX cargo. The USGC-Asia arbitrage on paper has been shut for more than threemonths since November 20, when the spread was at $41.99/mt. Typically,800,000 to 1 million mt/year of US-origin isomer-MX moves to Asia, which isstructurally short.

Meanwhile, a tightly-shut paper arbitrage has lent a floor to Asianisomer-MX prices that are under pressure from falling downstream prices. "Closure of the US-Asia isomer-MX arbitrage on paper has relativelysupported Asian isomer-MX prices amid nosediving downstream PX andsluggish purified terephthalic acid markets this week," a market sourcesaid.

--Michelle Kim,

--Edited by Irene Tang,

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