The high density polyethylene arbitrage from China to the US looks set to close after being open since mid-February, industry sources said Tuesday.
The HDPE price in China is $1,150/mt CFR FE Asia, versus the US price at $1,202/mt FOB, according to the latest S&P Global Platts assessments. Freight for this route is estimated to be at least $50/mt, and factoring in marginal profits for risk undertakings, Asian PE cargoes can still land in the US at over $1,200/mt, traders said.
Asian HDPE film prices have been consistently cheaper than US prices this year and the arbitrage started to open mid-February when the price differential rose above $50/mt, according to Platts data.
According to US custom statistics for April imports, around 56,000 mt of HDPE has been shipped to US from China.
However, the current backwardation in the US market since March is deterring further movement of Asian cargoes to the US, traders said.
Traders said they would only send cargoes when the arbitrage window opened for some time, as they were afraid of buyers defaulting while the shipment was on its way.
In addition, the arbitrage window was also likely to close as the forward market structure in Asia was possibly in contango due to upcoming maintenance, making substantial arbitrage attempts tricky, traders said. It will take international trading houses based in China more than 40 days to send spot PE cargoes from China to the US. Invoicing and other documentation could add up to another 10 days, resulting in an estimated landing date in H2 June, traders said.
Traders added arbitrage trades had been more difficult this year given that shipping costs have increased since the unexpected collapse of South Korea's Hanjin Shipping in August. Traders said they had less choice after mergers, acquisitions and bankruptcy last year, which led to a smaller number of the largest container carriers from 20 to just 14. That consolidation of freight meant reduced capacity, a slowdown in newbuild orders and more scrapping of older ships, as idle capacity is also prompting some owners to scrap ships earlier than usual. In hot weather, drafts have come down and vessel-carrying capacity has also fallen, traders arranging shipments said.
Towards the end of the year, the HDPE China to US arbitrage is expected to reverse as the US is expected to be a major PE exporter to Asia, with many new shale-based PE capacities starting by the end of this year.
