Flagging demand and a supply overhang in the Northwest Europe styrene monomer market has sparked a rare arbitrage opportunity for European traders to ship out to Brazil, market participants said Wednesday.
Market sources said a parcel of 5,000-6,000 mt in size, loading in January has been booked from Rotterdam to Rio Grande for delivery in February.
The landed price of that transaction was unknown, but regional traders peg freight costs at around $70-80/mt.
According to Platts data, the average styrene monomer price in January basis FOB Rotterdam was $1,301/mt. Hence, adding in freight costs, that cargo would land on Brazilian shores at around $1,371-1,381/mt.
Industry observers said that it was likely that the cargo had been sold to Innova, a subsidiary company of Brazil's state-owned Petrobras, which owns a 150,000 mt/year polystyrene plant and a 260,000 mt/year styrene plant in Triunfo, in the southern Brazilian state of Rio Grande.
Bearish market fundamentals in the Northwest European styrene monomer market had made it more economical for Brazilian spot buyers to purchase product from Rotterdam than from the US Gulf, where prices had been rising in 2012 due to tight supply.
NWE styrene prices were currently the lowest globally, compared with the US and Asia. Prices on the FOB US Gulf benchmark closed Tuesday at 61.75 cents/lb, equating to $1,360/mt, while prices on the FOB Korea benchmark settled at $1,381/mt Wednesday -- $56-77/mt higher than the FOB Rotterdam assessment of $1,304/mt.
From the beginning of December, US Gulf styrene prices had risen 7.25 cents/lb or 13.3% from 54.50 cents/lb to 61.75 cents/lb ($1,361/mt) on Tuesday. In the same period of time, Northwest European styrene monomer values had increased $71/mt or 5.8% to $1,304/mt FOB Rotterdam.
NWE styrene supplies have increased considerably since the restart of Styron's 500,000 mt/year ethyl-benzene/styrene monomer plant at Terneuzen in the Netherlands at the end of November and Total's 600,000 mt/year ethyl-benzene/styrene monomer plant at Gonfreville in northern France from the beginning of December.
Both plants were shut for maintenance works and additional volumes from both coincided with a period of seasonally lackluster year-end demand, that aggravated the oversupply situation. Meanwhile, downstream demand for polystyrene and acrylonitrile-butadiene-styrene into 2012, remained sluggish, while end-users grappled with the recent increases in feedstock prices.
Northwest Europe had since exported around 5,000-10,000 mt out to Asia in an attempt to alleviate the glut but high freight costs of $110-130/mt made that a risky endeavor. Nevertheless, traders were certainly still eying an arbitrage run to China.
"March arrival for Asia is very doable," said a trader. "$1,435/mt CFR." That value would netback to a value of $1,305-1,325/mt FOB Rotterdam basis that was $1-14/mt higher than Tuesday's assessment of $1,304/mt, yielding razor thin but positive margins.
