The weakness of the European MTBE market could see a relatively rare arbitrage to the East open up, trading sources said Thursday.
Typically, Europe is net short MTBE, relying on supply of barrels from the Persian Gulf. Producers in the Persian Gulf maximize flows to Asia or Europe depending on the attractiveness of pricing in the respective regions.
"Northwest European barrels moving to the East [might be possible] if the MTBE factor hits around 1.05; it has happened before," a trader said.
Weak demand for MTBE in Europe has resulted in the MTBE factor weakening to 1.0714 against Eurobob barges Tuesday and Wednesday, the lowest level since June 21, when MTBE factor stood at 1.0580.
MTBE is assessed at a factor, effectively a percentage ratio, to gasoline to reflect the economics of blending the component into the road fuel.
The outright MTBE price FOB ARA was assessed at $873.25/mt Wednesday, with FOB Singapore MTBE assessed at $916/mt Thursday.
Freight costs for moving LR1-sized vessels (55,000 mt) from Europe to the East are currently put at around $1.5-1.6 million, or about $29/mt.
The vessel could also carry a co-loaded cargo, to minimize the freight cost, sources said.
However, sources said the main demand for MTBE in Asia was originating from China, where buying interest was pegged around $880/mt CFR China.
"You may have some spot buying in Southeast Asia, Singapore but the big buyers are China; you probably need to achieve $880/mt FOB ARA minus freight for the arbitrage to open East," said a second trader.
Also, a lack of derivative instruments for hedging the arbitrage could stymie any movements, sources said.
"You can't lock it in. You would have to have a fixed price sale in the Far East," said the first trader.
"I will be surprised if we see actually any decent flow of MTBE at these levels even, unless the flat price comes off," said the second trader. "Also, what may happen is Asia may start to follow [Europe] lower as well."
In Singapore, the MTBE factor was assessed lower on Thursday, down 0.009 from Wednesday to 1.095 reflecting lower buying interest, with the only spot demand coming from China.
Typically, Europe is net short MTBE, relying on supply of barrels from the Persian Gulf. Producers in the Persian Gulf maximize flows to Asia or Europe depending on the attractiveness of pricing in the respective regions.
"Northwest European barrels moving to the East [might be possible] if the MTBE factor hits around 1.05; it has happened before," a trader said.
Weak demand for MTBE in Europe has resulted in the MTBE factor weakening to 1.0714 against Eurobob barges Tuesday and Wednesday, the lowest level since June 21, when MTBE factor stood at 1.0580.
MTBE is assessed at a factor, effectively a percentage ratio, to gasoline to reflect the economics of blending the component into the road fuel.
The outright MTBE price FOB ARA was assessed at $873.25/mt Wednesday, with FOB Singapore MTBE assessed at $916/mt Thursday.
Freight costs for moving LR1-sized vessels (55,000 mt) from Europe to the East are currently put at around $1.5-1.6 million, or about $29/mt.
The vessel could also carry a co-loaded cargo, to minimize the freight cost, sources said.
However, sources said the main demand for MTBE in Asia was originating from China, where buying interest was pegged around $880/mt CFR China.
"You may have some spot buying in Southeast Asia, Singapore but the big buyers are China; you probably need to achieve $880/mt FOB ARA minus freight for the arbitrage to open East," said a second trader.
Also, a lack of derivative instruments for hedging the arbitrage could stymie any movements, sources said.
"You can't lock it in. You would have to have a fixed price sale in the Far East," said the first trader.
"I will be surprised if we see actually any decent flow of MTBE at these levels even, unless the flat price comes off," said the second trader. "Also, what may happen is Asia may start to follow [Europe] lower as well."
In Singapore, the MTBE factor was assessed lower on Thursday, down 0.009 from Wednesday to 1.095 reflecting lower buying interest, with the only spot demand coming from China.
