East-west spreads for naphtha strengthen to over 7 month high on weak Europe demand

08-Dec-11

The east-west spreads for naphtha - the differential between CFR Japan swaps and Northwest Europe swaps, bolstered to peak to seven-month high as demand in Europe weakened, as per Reuters. December naphtha swaps in Asia were US$21.50 higher than Northwest European prices, indicating that the arbitrage to send cargoes from Europe to Asia was open. At least three LR-sized cargoes have been booked on voyages to arrive in North Asia in H1 to mid January. Traders said that the arbitrage for full range naphtha, the heavier grade, was wide open while the arbitrage for open spec was closed. Paraffinic/petrochemical naphtha is trading at -US$2/ton to Japan quotes and freight is still expensive. But this arb might not be too far from working if South Korea is buying at high premiums. Demand for naphtha is currently being seen by South Korea, but the reason for their purchases is unclear. Front-month H2-January open spec naphtha strengthened by US$16 to US$924/ton.