Several US Gulf Coast naphtha cargoes are headed to Asia this month due to a more workable arbitrage, though rising freight rates could halt further movements, shipping and trading sources said.
Five or six cargoes of mostly heavy naphtha have been fixed for loading from the USGC to Asia. Most of the product is being moved by USGC producers, such as Shell, Valero and Phillips 66, who are using naphtha from their own systems rather than buying on the spot market, traders said.
According to Platts cFlow ship-tracking software, about six medium range tankers, each able to carry about 38,000 mt, and one LR1, capable of carrying 60,000 mt, — totaling about 290,000 mt — left the Gulf Coast in April and are en route to Japan. Of these, Shell was heard to be using its own tanker, the Tian E Zuo, to move a 60,000 mt naphtha cargo cargo East. The Tian E Zuo, which left Corpus Christi on April 11, is expected to arrive in Daesan on May 15, according to cFlow.
USGC naphtha prices have been falling since early April due to lack of local demand, according to sources. The standard USGC CIF naphtha barge differential softened to M2 Waterborne gasoline minus 18.25 cents/gal Thursday, the lowest since April 7, Platts data shows. FOB USGC light, paraffinic naphtha prices were at $545.36/mt Thursday and FOB standard naphtha cargoes at $589.01/mt.
GE Warren has been offering a 50,000-barrel barge CIF basis Houston in the Platts Market on Close assessment process this week. The company found buying interest from Vitol on Monday, but has not been able to attract any new buyers since.
US-based shipping sources this week said there has been chartering interest to move naphtha cargoes to Asia, but noted that rising freight rates could see some charterers pull their cargoes.
“The interest is there, but depending on the price, the interest goes away,” said one shipbroker.
FREIGHT RATES FOR MR TANKERS HIGHER
Shell was heard to have placed the High Mercury on subjects for a USGC-Far East voyage, loading April 27-29, at a lump sum rate of $1.425 million, but that fixture was failed this week. ATMI and P66 were heard to be in the market earlier to each move a 38,000 mt naphtha cargo from the USGC to the Far East for April 25-30 laycans. The two cargoes were eventually pulled and re-emerged with slightly later laycans — ATMI with an April 30-May 5 loading naphtha cargo and Phillips 66 with a May 3-5 requirement, according to sources.
Freight rates for MRs out of the US Gulf Coast have been rising this week, with a rush of cargoes for the April 25-30 laycan taking a bite of tonnage list in the region.
Platts does not assess the freight rate to move an MR cargo from the USGC to the Far East, but according to shipping sources that route is now going for about $1.6 million, or about $42/mt, compared with about $1.45 million, or $38/mt, a week ago. It takes about 42 days to ship an MR cargo from the Gulf Coast to Japan.
With naphtha for delivery into Japan over the first half of June assessed at $588.75/mt Friday, that would just about cover the cost of freight currently to ship light naphtha, with FOB USGC light, paraffinic naphtha standing at $545.36/mt.
Platts does not assess heavy naphtha grades for delivery into Asia, but Asia-based traders said this week that recent spot deals for the grade have been heard at a premium of around $50-$53/mt to the Mean of Platts Japan naphtha assessments, CFR North Asia.
Some Asia-based naphtha traders Friday said the window to move USGC naphtha cargoes to Asia has now closed, with arbitrage economics to move naphtha cargoes into Asia for arrival in June not workable.
“It was earlier this week but not now though,” an Asian trader said, adding that rising freight rates in the USG was part of the reason.
“There are some vessels coming over for June arrival into Asia but those were fixed some time ago,” another Asian trader said.
RECORD HIGH CRACKING MARGINS
It is not clear how much USGC naphtha volumes will arrive in Asia in June, but market sources said about 300,000-350,000 mt is due to arrive in May from the US, comprising both heavy naphtha and light naphtha grades.
While Asian trading participants said heavy naphtha is usually the preferred grade of naphtha to bring over from the US due to the higher premiums the grade is able to command in Asia, light naphtha has also been enjoying strong demand in Asia of late.
North Asian petrochemical cracking margins recently touched a record high due to a shortage of ethylene supplies, brought on by the peak April-June turnaround period among North Asian naphtha-fed steam crackers.
North Asian steam crackers primarily use naphtha as feedstock, with light naphtha the feedstock of choice at the moment due to its higher yield of ethylene as compared to heavier grades of naphtha.
But while Asia-based naphtha traders said current economics to work the USGC-Asia arbitrage was difficult, the drive to move cargoes remained strong. “The interest to move cargoes from US to Asia is always there, so there’s always stuff from the US and Americas coming [to Asia] because those regions always have more in terms of supply,” one trader said. “But at the moment, I don’t think the US is that long on cargoes, so they can survive without bringing over stuff.”