The Asian butadiene/naphtha spread narrowed to an eight-month low of $329.38/mt Monday, following the closure of the arbitrage window to move Asian butadiene to the US Gulf Coast.
The spread value was last lower on September 12, 2013, when it was at $301.75/mt, Platts data shows.
Benchmark FOB Korea butadiene was assessed at $1,275/mt Monday, down $5/mt from Friday, while Mean of Platts CFR Japan naphtha price rose $9.88/mt to be assessed at $945.63/mt -- narrowing the butadiene/naphtha spread by $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.
Benchmark CIF US Gulf butadiene was assessed at 73.50 cents/gal on May 16, down 0.50 cents/gal from the previous week. Platts assesses butadiene prices in the US on an weekly basis.
"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 $370-380/mt, up from $350/mt early in the year, trade sources said.
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," said an industry source.
