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Europe-Asia naphtha arbitrage volumes fall to 11-month low for Sept loadings

Highlights

Europe to Asia flows fall for third straight month for Sept loadings

Narrow East-West spread caps arbitrage opportunity

European propane to naphtha on paper at multimonth high

Tight supply decreased the flow of European arbitrage naphtha to Asia, slashing volumes for the September loading program by 20% month on month, while thin volumes are also expected for the October-loading program on strong regional demand in Europe.

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September-loading Europe to Asia naphtha shipments was around 1.215 million mt, down from 1.525 million mt for August-loaded volumes, according to data from market sources and S&P Global Platts cFlow. The monthly volumes were last lower for the October 2020 loading program which amounted to around 1.19 million mt, Platts data showed.

While lower volumes were expected for the September loading program on the back of decreased demand from planned turnaround in Asia in October, traders also found it economically unviable to send arbitrage naphtha to Asia and kept cargoes to meet strong demand appetite in Europe.

The sparse volumes could continue for the October loading program, as the key spread between front month October naphtha C+F Japan cargo versus CIF NWE cargo – an indicator of arbitrage opportunity – was at $11.50/mt on Sept. 28 European close, down from $12.75/mt the week before, Platts data showed.

Chartering activity had begun for the October-loading program, with five Long Range II tankers and one Long Range I tanker heard booked to load around 460,000 mt of European naphtha in the first half of October for Asia-bound voyages, market sources said.

An uptrend in freight was also a deterrent to charterers, as LR2 Mediterranean-Japan freight had climbed to a five-month high of $2.05 million on Sept. 27, but has since edged marginally lower at $2 million on Sept. 28, Platts data showed.

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

LPG upswing drives naphtha demand

Demand in Europe was mainly for petrochemical feedstock grades, as LPG alternatives were showing increased premiums in line with rising demand for heating.

Concurrently, an uptrend in natural gas prices led several domestic refiners resorting to LPG as a refinery fuel.

An anticipated further decline in outdoor weather temperatures both in Asia and in Europe will likely sustain or even exacerbate current trends, favoring in naphtha as a petrochemicals feedstock during winter months.

The front month propane swap contract closed at a $95.75/mt premium against equivalent naphtha Sept. 28, up from a $59.50/mt premium on the previous assessment, Platts data showed. This was the highest premium seen since April 21, 2020 at the heart of the pandemic.

Demand for naphtha as a petrochemical feedstock was also strong in both Asia and Europe due to positive olefin margins supporting high run rates at steam crackers.

USGC supply recovers

Asian naphtha was earlier boosted by supply tightness caused by storm damage curtailing US Gulf Coast output. Apart from Europe, North Asia's petrochemical production hub also relies on the US for arbitrage naphtha cargoes. Market participants said while Asia remains short on naphtha because of firm demand for the current November delivery cycle, the recovery in USGC output has improved supply.

Europe in turn, particularly NWE, has once again begun attracting USGC flows which have in turn contributed to a softer sentiment relatively to previous weeks. Also, traders had sent some Mediterranean and Black Sea cargoes to NWE rather than to Asia due to the uneconomical arbitrage.

The softer market was reflected in the CFR Japan naphtha physical crack against front-month ICE Brent crude futures, which fell $9.15/mt week on week to $126.825/mt on Sept. 28 Asian close, Platts data showed.

"We are short on paraffinic naphtha [In Asia], the market has bullish and bearish factors but is cooling down because the flat price is too high," said a Singapore-based naphtha trader.

The recent upswing in crude markers pushed benchmark C+F Japan naphtha $30/mt higher week on week to a near three-year high of $727.875/mt at the Sept. 28 Asian close, Platts data showed. The naphtha benchmark was last assessed higher at $728.625/mt on Oct. 5, 2018.

Europe to Asia naphtha fixtures

Vessel

Quantity

('000 kt)

Cargo
Laycan
Voyage
Freight
Charterer
BW Yarra
60
NA
Oct15
Tuapse-East
$1.725m
ATS
Front Altair
80
NA
Oct10
Novorossiysk-Japan
$2.2m
Litasco
Pink Stars
80
NA
Oct5
Taman-Japan
Own Prog
Bp
Hua Lin Wan
80
NA
Oct4
Ust Luga-East
$2.125m
Novatek
STI Sloane
80
NA
Oct2
Eleusis-Japan
$1.95m
ATS
Yuan Ju Wan
80
NA
Oct1
Ust Luga-East
$2.2m
Novatek
Seriana
80
NA
Sep30
Skikda-Japan
Own Prog
Trafigura
Hua Lin Wan
80
NA
Sep29
Ust Luga-Japan
rnr
Novatek
SKS Doda
80
NA
Sep29
Tuapse-Japan
$1.95m
ATS
Polar Unicorn
60
NA
Sep22
Huelva-Brazil, UKC, TA, Japan
w107.5, w97.5, w92.5, $1.55m
Cepsa
Kmarin Reason
55
NA
Sep21
Skikda-Japan
Own Prog
Bp
Kleon
80
NA
Sep20
Novorossyisk-Japan
Own Prog
Trafigura
SKS Driva
80
NA
Sep19
Eleusis-Japan
$1.65m
ATS
STI Madison
80
NA
Sep16
Novorossyisk-Japan
$1.825m
Petraco
Bahra
80
NA
Sep14
Tuapse-Japan
$1.8m
Socar
Kapten Caroq
80
NA
Sep13
Agioi-Japan
$1.675m
Trafigura
Seaodyssey
80
NA
Sep12
Skikda-Japan
$1.7m
STASCO
Lilac Victoria
60
NA
Sep12
Huelva-Japan
$1.6m
Cepsa
Prosky
80
NA
Sep8
Ust Luga-Japan
$2.2m
Novatek
Suvretta
80
NA
Sep8
Skikda-Japan
Own Prog
Trafigura
STI Lobelia
80
NA
Sep6
Tuapse-Japan
$1.875m
ATS
Captain Spiro
80
NA
Sep6
Taman-Yeosu
rnr
cnr
Zantoro
80
NA
Aug30
Skikda-Japan
$1.63m
Total
BW Neso
80
NA
Aug27
Ust Luga-Japan
rnr
Novatek
King Philippos
80
NA
Aug25
Tuapse-Japan
$1.75m
Trafigura
Timberwolf
80
NA
Aug24
Skikda-East
rnr
cnr
STI Rose
80
NA
Aug18
Novorossiysk-Japan
$1.75m
Bgn
STI Grace
80
NA
Aug18
Eleusis-Ulsan
$1.6m
ATS
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
Tuapse-Brazil, Japan
w90, $1.675m
Trafigura

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

Source: Industry sources, S&P Global Platts cFlow