Fixtures for shipments of more than 190,000 mt of heavy naphtha bound for Asia from the US Gulf Coast show that the arbitrage window has reopened to meet firm demand from Asia, trade and shipping sources said Friday.
It marks the second time in a year that the previously rare arbitrage window has opened, spurred this week by ample US supply amid a weaker gasoline market.
The US Gulf Coast-Asia arbitrage last opened in October, when shipments were fixed for about 265,000 mt of naphtha.
Interest in moving naphtha from the US Gulf Coast to Asia has been brewing all week. Sources said two LR1 tankers and two MR tankers were booked, with 191,000 mt of heavy naphtha slated to load over early April.
"Asia is short on heavy naphtha, and there are traders asking about the US Gulf-East route," said an LR1 shipowner source.
Another trade source added that Asia is "structurally short" of heavy naphtha every month and seeing "a lot of N+A [Naphthenes/Aromatics] on arbitrage coming from USG."
ST Shipping, Glencore's shipping arm, took the UACC Ibn Sina to lift 60,000 mt of naphtha from USG-Asia at $1.85 million and also took the MTMM Mumbai to lift 38,000 mt for loading over April 11 at $1.25 million, according to sources.
A source close to the deal confirmed that Glencore is moving vessels from USGC to Asia, adding that the arbitrage opportunity had been available for a week.
"All I can say is, we have ships coming," the trader said Thursday. "On paper, the arbitrage is still open."
Shipping sources also said Trafigura took the New Challenge for a USG-Asia voyage, loading over early April, at $1.85 million for a 55,000 mt cargo; and Phillips 66 took the Horizon Armonia for the same voyage, loading over April 5, at $1.4 million for a 38,000-mt cargo.
The spread between CFR Japan first-cycle flat price open-spec naphtha and CIF Houston heavy naphtha stood at $46.54/mt Thursday, Platts data showed. Trade sources said the US Gulf-Japan voyage typically takes about 40 days, while the freight is estimated at $45/mt.
The CFR Japan first cycle flat price has been at a premium over CIF Houston heavy naphtha since March 27, when they were assessed at $936.25/mt and $934.43/mt, respectively.
It becomes more profitable to move cargoes to Asia as the CFR Japan/CIF Houston naphtha spread widens.
The heavy naphtha grade, rich in naphthene and aromatics, typically commands a premium of $1.50-2/mt above open-spec naphtha. So when normalized, the East/West heavy naphtha spread will be even wider than the spread between CFR Japan open spec naphtha and CIF Houston heavy naphtha.
Platts does not assess the heavy naphtha grade in Asia.
US Gulf Coast naphtha comprises heavy to heavy-full-range grade material, which commands a premium in Asia given a lack of stable supply.
Open spec naphtha with at least 65% paraffin content is the primary grade traded in Asia.
While premiums have been falling for open-spec naphtha, premiums for heavy naphtha continue to hold relatively firm.
The latest trade heard in the market was CPC's purchase of an unspecified volume of N+A from an undisclosed seller at a premium of at least $50/mt. The cargo will be delivered into Mailiao, Taiwan, in the second half of May.
"Heavy naphtha is still popular compared to the other grades," said a Singapore-based trader. "I'm seeing many people look for it ... from China and Japan, thus premiums continue to hold."
A softer gasoline market in the US this week helped free up more heavy naphtha for exports, sources said.
The May RBOB futures at Houston close continued sliding for two straight sessions since slumping to a three-week low on April 2 at $3.03/gallon, Platts data showed.
Meanwhile, margins for downstream aromatics -- which use heavy naphtha as a feedstock -- have been buoyant in recent months. The benzene FOB Korea/benchmark MOPJ naphtha flat price assessment spread stood at $418.38/mt Thursday, after hitting an eight-year high in December.
Traders were unsure how much more heavy naphtha would head to Asia.
"As with all arbs, it depends on timing and freight rates ... [the US] pricing quotes are also very volatile," said a Singapore-based trader earlier this week.
The arbitrage calculation is based on a conversion rate of 3.45 from cents/gallon to $/mt.
