Butadiene-naphtha spread in Asia narrows to 8-month low as arbitrage window shuts

21-May-14

The Asian butadiene-naphtha spread narrowed to an eight-month low of US$329.38/mt Monday, following the closure of the arbitrage window to move Asian butadiene to the US Gulf Coast, as per Platts. The spread value was last lower on September 12, 2013, when it was at US$301.75/mt. Benchmark FOB Korea butadiene was assessed at US$1275/mt Monday, down by five dollars from Friday, while Mean of Platts CFR Japan naphtha price rose US$9.88/mt to be assessed at US$945.63/mt -- narrowing the butadiene/naphtha spread by US$14.88/mt. The US had been buying spot cargoes from South Korea since February to offset a shortfall in supply because of shutdowns at some butadiene plants. According to South Korean customs data, the country exported around 23,679 mt of butadiene from February to April to the US. But with US plants now gradually resuming operations, prices in the US butadiene market have started easing, closing the arbitrage window in the process. "The troubled plants are slowly [going] back up to normal operations in the US. The US butadiene market has peaked out," a trading source said late Monday. Adding to this, arbitrage economics were weakened by higher freight rates. "Freight costs from Asia to the US are rising as most of butadiene vessels have now gone to the US. It is very difficult to find vessels here in Asia," another trading source said. At present, freight rates to move a 5,000-mt cargo from South Korea to the US Gulf Coast are around US$370-380/mt, up from US$350/mt early in the year. Still, tight supplies from South Korea are likely to provide a floor for the Asian butadiene market, with industry sources expecting a gentle decline in prices. Even though demand from the US is fading, butadiene supplies in South Korea are tight. South Korean producers are not in hurry to sell spot cargoes.