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Olefins Rarity: Global Arbitrages Open

A News & Data Feature

Asian traders eye rare cargo moves, low freight with arbs open for 3 olefins same time

By Wong Wen Yin, Shashank Shekhar and Marcus Pang

April 22, 2014 - With arbitrage windows between Asia, Europe and the Americas open for the three main olefins -- ethylene, butadiene and propylene currently -- traders are looking to move cargoes on rare routes and at lower freight rates between the three major markets, industry participants and traders said the week ended April 11.

This would be the first time that arbitrage windows for the three olefins are open at the same time, they added.

The ethylene arbitrage window for cargoes coming from Europe and Mexico to Asia opened in February first and then shut for a while to reopen in end March and it has remained opened since then, market observers said.

The propylene arbitrage window from Asia to Europe opened in the beginning of April and has remained opened till now, while the butadiene arbitrage window from Asia to the US has been open since early February till now, they added.

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"This is possibly the first time that the arbitrage windows for all the three olefins are open at the same time," said a trader April 15.

In this rare trading situation, freight costs for the routes have dropped as well, sources said.

"It is possible to get lower freight rates on rare routes as these vessels can load other material on their way back," said a Southeast Asia-based source.

Rare moves for ethylene possible due to other arbs opening

Since early February, Western ethylene cargoes have been coming into Asia amid tight supply in the region and an oversupply in Europe, traders said.

Total European ethylene imports into Asia till date were about 60,000 mt, they added.

The CFR Northeast Asia and CFR Southeast Asia ethylene markers were assessed at $1,420/mt and $1,465/mt, respectively, April 15, while the CIF Northwest Europe price was assessed at $1,170/mt. (See relarted chart: Olefins spread between EU and Asia).

Given an intra-Europe freight of $70/mt, traders estimated the ethylene price to be around $1,100/mt on an FOB Northwest Europe basis.

With freight from Europe to Southeast Asia and to Northeast Asia pegged around $300/mt and $330/mt, respectively, traders could earn a profit of around $20-35/mt.

In a rare move, traders were also looking at bringing Mexico-origin ethylene into Asia, Platts reported previously.

Typically, Mexican ethylene lands in Europe, but with the recent weak prices there, traders were looking to send material to the tightly supplied and more attractive Asian market.

Shipping and trading sources expect freight cost from Mexico to Southeast Asia to be around $400-500/mt, depending on vessel availability.

The only challenge facing them was securing a vessel at a reasonable rate for the month-long journey to Asia.

"It is a real challenge to secure [a] vessel," as it is not a typical route and shipowners would not likely be willing to take such a risk, said a trader the week ended April 11.

"You do not want your vessel to be empty when returning," he said. "It is a waste of money."

But with the butadiene arbitrage from Asia to the US opened since early February and the arbitrage route to send Asian propylene to Europe open since April, those vessels need not return empty now, said sources.

The vessels carrying ethylene can also carry butadiene or propylene on their way back, once they are cleaned or purged.

The cost of purging a vessel varies depending on where the purging is taking place and whether the vessel has a nitrogen generator.

In Asia, the cost for purging a 3,500-mt vessel is around $30,000 and that for a 9,000-mt vessel is around $80,000, said shipping and trading sources.

The purging cost remains the same in $/mt basis irrespective of size.

"The purging cost is around the same [of around $8-9/mt] as these vessels require to be conditioned to 99.8% nitrogen concentration regardless of vessel size," said a ship broker.

Next page: Propylene arbitrage window opens in April

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