US naphtha has been moving to Asia over the past month and is due to arrive in February, as US refiners seek to draw down high stocks in the face of low gasoline demand during winter, traders and shipping sources said.
At least four cargoes from the US Gulf Coast are due to arrive in East Asia next month, traders said. A cargo from Hawaii was also heard to have been taken by a South Korean refiner.
While the flows on the US Gulf-Far East route are likely to slow due to greater availability of cheaper volumes from India and the Middle East, some US material would continue to move to meet grade-specific requirements in Asia, sources said.
"Heavy naphtha cargoes are still being imported from the US," a Singapore-based chartering executive with a global commodities trading company said.
Asian demand for paraffinic naphtha is normally sourced from India and Europe, sources said.
In the latest fixture, refiner Valero placed on subjects a Torm Medium Range tanker for loading 38,000 mt of naphtha this week on the US Gulf-North Asia route. Traders said the cargo was likely bound for a Japanese refiner.
Assuming a two-day transit at the Panama Canal, it takes nearly five weeks to transport a naphtha cargo to Japan from the US Gulf.
Up to three naphtha cargoes are being nominated every month on this route, said a clean oil tankers broker in Seoul.
In recent months, bigger stems of up to 60,000 mt are being nominated, which are loaded on Long Range 1 tankers. MR stems are up to 40,000 mt.
The last bigger naphtha stem was covered with tonnage almost three weeks ago when Statoil chartered an LR2 for December 19 loading, sources said.
"The freight rates have shot up since November and, so, the economics of bringing naphtha from the US doesn't work anymore," a clean oil tanker broker in Singapore said.
The freight cost in Valero's fixture is equivalent to around $38/mt. Since end-October, freight rates for MR tankers on this route have risen to around $1.45 million from $995,000, according brokers' estimates.
There was talk about whether the US-Asia arbitrage will remain open, with some sources saying that with Asian demand yet to pick up at the start of the year, the moves did not indicate an opening of the US arbitrage to Asia.
"These are opportunistic moves," one Japanese trader said. "People want to tighten the US Gulf Coast supply by selling to Asia."
One sign of the length in US supply is that barges have been waiting several days since mid-December outside terminals in the Houston Ship Channel, with waits beyond the normal 3-5 days extending into Tuesday, sources said.
This had sent US Gulf Coast naphtha barges down near-three-month lows versus barge gasoline Tuesday.
HEAVY NAPHTHA FROM US
Naphtha to Asia from the US Gulf Coast is usually a heavy or heavy full range grade. "But Asian demand for heavy naphtha is still not good," a trader said.
With the arrival of these US Gulf cargoes, traders said the market for heavy full range naphtha looked more bearish than for open-specification naphtha favored by most Japanese and South Korean petrochemical makers.
The cargo from Honolulu's Barber Point arrived at South Korea's Ulsan terminal on December 27, according to cFlow, S&P Global Platts trade flow software.
Traders said a 25,000-mt cargo of open-spec naphtha -- which has a minimum paraffin content slightly lower than the 70% typically taken by South Korean buyers -- is shipped from Hawaii once every few months and some could occasionally head for South Korea.
On Thursday, the Asian open spec naphtha market rose along with positive sentiment in Europe amid concerns over a draw in stocks and improving demand on the continent, traders said.
One indication was the purchase of 3-4 cargoes of open spec naphtha with a minimum paraffin content of 70% by South Korea's Lotte Chemical at discounts of between $1/mt and 50 cents/mt to the Mean of Platts Japan naphtha assessments, CFR Yeosu and Daesan.
That compared with Lotte Chemical's last purchase of similar grade naphtha for H1 February delivery at between minus $1.5/mt and minus $1/mt to the MOPJ naphtha assessments, CFR Daesan/Yeosu, traders said.
But traders said the Europe-driven rally would keep the arbitrage economics from Europe/Mediterranean firmly shut.
The February east/west naphtha spread -- the premium of CFR Japan naphtha cargo swaps to the CIF NWE naphtha cargo swap -- was assessed in Asia Thursday at $12/mt, from $12.75/mt Wednesday, Platts data showed.
The arbitrage was last open around mid-November, bringing to Asia around 1.3 million mt of naphtha in December and 1.6 million mt in January mainly from the Mediterranean and Algeria, traders said.
Brokers said that even though the Western arbitrage window was limited, Asia will continue to see flows of baseload term cargoes.
The bulk of the Western naphtha cargoes destined for North Asia are lifted from European ports such as Amsterdam, Rotterdam and Antwerp, or ARA, Mongstad, Tuapse, UST Luga, Mellitah, Milazzo, Cartagena, Skikda and Eleusis, sources said.
