US-Asia naphtha arbitrage volume hits 9-month high for January loadings

Singapore — Fixture volumes for naphtha cargoes from the US Gulf Coast bound to Asia have hit a nine-month of 560,000 mt for January loading, a surge of almost 150% from the December loading program, data from market sources and S&P Global Platts trade-flow software cFlow showed Jan. 19.

Robust naphtha demand by the Far East petrochemical hub has attracted Western arbitrage interest in recent weeks, and the US supplies the light naphtha grades that are currently in demand due to positive olefin margins.

The US-Asia naphtha fixture volume was last higher in April 2020 at 880,000 mt loaded for shipping to destinations in Asia for arrival over May 2020, Platts data showed.

Total May 2020-arrival cargoes from the Americas into Asia was 1.032 million mt, while total February 2021-arrival cargoes are currently at least 772,000 mt, data from market sources and Platts cFlow showed.

The high US volume for February arrival cargoes was partially due to weather delays in the US Gulf, as well as delays at the Panama Canal, which rolled over some cargoes into the next delivery cycle, sources said.

Typically voyages from the USGC take 38-40 days to arrive in North Asia via the Panama Canal, shipping sources said.

Even with these higher-than-usual volumes, bullish sentiment persisted in the Asian naphtha market as new naphtha-fed steam crackers were due to come online from H2 January, sources said.

Also, total Western arbitrage volumes would amount to more than 2 million mt for February arrival, with at least 1.205 million due to ship from Europe, the Mediterranean and North Africa, data from market sources and Platts cFlow showed.

Typically the East of Suez markets are net short 2 million mt/month of naphtha, which is met by Western arbitrage shipments, while in 2021 the incremental demand of at least 100,000-150,000 mt/month from fresh steam cracker startups is expected to be met by US shipments, Platts earlier reported.

On paper, traders may be able to send some arbitrage shipments, as the physical spread between benchmark naphtha C+F Japan and FOB USGC after including MR freight was in positive territory, Platts data showed.

This cross-regional spread minus Medium Range freight between FOB US Gulf Coast and C+R Japan naphtha has largely been in positive territory since early-December 2020, and was last at $20.915/mt at the US close Jan. 15. Traders also have to consider other costs such as port charges, Panama Canal fees or changes in market structure affecting delivered prices.

Benchmark physical C+F Japan naphtha has since edged down $12.625/mt on the day to $516/mt on Jan. 18's Asian close, on the back of the half month roll of the trading cycle into H1 March delivery cycle, Platts data showed.

For the USGC to Northeast Asia voyages, the MR tanker freight was stable day on day at $1.3 million on Jan. 15, while the corresponding Long Range I tanker freight was assessed at $1.85 million, Platts data showed.

AMERICAS TO ASIA NAPHTHA FIXTURES:

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

Data from: Market sources, S&P Global Platts cFlow