A more workable naphtha arbitrage between the Mediterranean and Asia over the past month, helped by a wider naphtha east/west spread, is adding to the current excess of supply in east Asia, according to sources.
According to Asian sources, some 1.2 million mt to 1.3 million mt of naphtha from Europe is due to arrive in Asia in July, largely in line with June arrivals, but higher than volumes in the winter and the spring, when the naphtha arbitrage from the Mediterranean and the Black Sea to Asia was heard closed for spot fixtures.
However, the arbitrage seems to have partly re-opened since the end of May, particularly for LR2 vessels loading from one port.
The front-month naphtha east/west spread -- the premium of CFR Japan naphtha cargo swaps over the CIF NWE naphtha cargo swap -- widened 75 cents/mt to an almost four-month high of $13/mt on Tuesday, S&P Global Platts data show. It is the widest naphtha east/west spread since February 24, according to Platts data.
After falling to a year-to-date low on June 2, clean freight rates for LR2 tankers on the Med-Japan route have risen, but remain relatively inexpensive, according to sources. Clean LR2 rates on the Med-Japan route, basis 80,000 mt, were assessed at a $1.725 million lumpsum Tuesday, unchanged from Monday, compared with a $1.55 million lumpsum on June 2, Platts data show.
Amongst the latest fixtures, the Saint George was reported to have been fixed to load a 90,000 mt naphtha cargo in the last decade of June from Skikda in Algeria to Asia and the Fair Seas loaded 80,000 mt of naphtha from Skikda on June 11 and is headed for the South China Sea. The Southern Spirit has reportedly been fixed to load 80,000 mt of naphtha from Greece and the Russian Black Sea port of Tuapse around June 18 to go to Japan.
Meanwhile, Asian destinations are also seeing some arrivals from the US Gulf Coast. The Sauger was heard fixed at a lumpsum rate of $1.65 million to load 60,000 mt of naphtha on June 18 on the US Gulf Coast and is destined for Japan.
As a result of the influx, the Asian market is seeing an inventory buildup.
Petrochemicals producers have high inventories and sellers were nominating maximum volumes for cargoes' operational tolerance to end-users due to weaker outright prices, sources said.
Demand for spot August-delivery cargoes is likely to be affected, as end-users scale back their purchases and manage their stocks, although spot buying for August cargoes has yet to start.
Benchmark CFR Japan naphtha was assessed at $409.625/mt Tuesday. The CFR Japan naphtha crack against front-month ICE Brent crude futures remained under $60/mt at $56.375/mt Tuesday.
Platts FOB Mediterranean naphtha cargo assessment on Tuesday was $370.25/mt, down $12.50/mt day on day.
In the Northwest European naphtha complex, sentiment was seen improving as most of the prompt length cleared out, but overall physical premiums remain under pressure due to the healthy availability of cargoes and rather slow spot demand.
"The Med looks OK, but slowly July supply is coming out so it might feel long very shortly," a Europe-based market participant said.
According to a second Europe-based market participant, prompt supplies cleared out in Northwest Europe and the Mediterranean naphtha market looks better thanks to the more workable arbitrage to Asia and vessels going to Brazil. As a result, fewer cargoes should come from the Mediterranean to Northwest Europe.
"Some long-range tankers got fixed to Asia and some to Brazil ... not much naphtha is coming [north] I think," he said. However, "it's a kind a standoff," he said, adding that no one seemed to really want to buy or sell.
CIF NWE naphtha cargo was assessed at $386/mt Tuesday, $12.50/mt lower day on day and assessed at a 50 cents/mt discount to the July CIF NWE naphtha swap, compared with a 50 cents/mt premium the previous day.
