Naphtha continues to flow from the heavily oversupplied Northwest Europe market to Asia, supported by a widening East/West spread, keeping a marginally workable arbitrage open despite the Asian market itself falling to nine-month lows this week amid weakening demand, as per Platts.
The front-month East/West spread, the differential between the benchmark Mean of Platts Japan and CIF NWE naphtha assessments, has widened US$10/mt in the last eight trading days to US$25.50/mt while at the European market close on Tuesday the physical or spot spread was assessed at US$34.75/mt.
"NWE wants to push its length to the East which does not need the barrels," said one trader “There is nowhere else to go," said another source. CFR Japan naphtha prices hit a nine-month low at the beginning of the week, with the Asian market coming under pressure from thinning end-user demand as the regional petrochemical plant turnaround season gets under way, and from the weight of import volumes. Alongside a flood of imports from Europe, there has been a relatively rare arbitrage from the US Gulf Coast to Asia in recent weeks, with some 250,000 mt heard making the trip. But the European markets have fallen even further than Asia, with sentiment extremely bearish in an NWE market described as "very long." On Tuesday, CIF NWE naphtha cargoes were assessed at a nine and a half month low of US$782/mt, while CIF Med naphtha was assessed at US$772.50/mt.
The arbitrage from Europe to Asia has been facilitated by lower freight costs but remains marginal at best, according to European traders.
According to shipping sources, at least 500,000 mt naphtha has been fixed in the past week to load from the Med and Northwest Europe in mid-April.
18-Apr-13 
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