About 150,000 tonnes of mainly heavier naphtha grades will be shipped to Asia from the Mediterranean in March, but a shortage in Europe is likely to halt further shipments to Asia, traders said on Thursday. The volumes are mainly heavy full-range and heavy naphtha, grades which can be used to make paraxylene, a material needed in polyester manufacturing and production of PET bottles.
Open-spec grades, or those with a higher paraffin content, are usually used for cracking into ethylene and propylene needed to make plastics. "The arbitrage window for open-spec grade was shut recently but not for the heavier naphtha grades as supplies were extremely tight in Asia," said a trader. "Buyers were willing to pay. But the window for heavier grades may also shut soon."
Prices in Northwest Europe of most naphtha grades were rising as supplies were shrinking on refinery outages and shutdowns due to monetary losses. The strong European market may even result in Gulf/Asian naphtha barrels being shipped to the West in what traders term as 'reverse arbitrage'.
"The February East-West values are now at a discount, but March prices are still in a high single-digit premium. So there could still be a chance that Asia may keep the Gulf/Asian barrels," said another trader. East-West swaps, or the difference between Asian and Northwest European prices, flipped into the negative zone for the first time in about 3-1/2 months on Wednesday.
This reflected that Asian prices were lagging, which was uncommon because the East is structurally short of naphtha. Shipping reports showed that Glencore lifted 35,000 tonnes of Asian-origin naphtha cargo on January 25 to Canada. At least one more firm may be looking to move Gulf barrels out to the West. Reverse arbitrage was last seen in July last year when Asia's naphtha demand dived following the shutdown of a cracker owned by Asia's top naphtha buyer Formosa Petrochemical Corp.
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