The backwardation in the benzene market in Asia is the widest in five years, with the spread between H1 July and H1 August at $45/mt on Monday, as strong demand in the US was increasing the flow of Asian barrels to the country.
The H1 July versus H1 August spread widened by $2/mt from last Friday to $45/mt Monday, when H1 July was assessed at $1,045/mt FOB Korea and H1 August at $1,000/mt FOB Korea. Over the past five years, the spread has not extended beyond $25/mt, according to Platts data.
The strong backwardated structure was reflected on Monday when South Korea's GS Caltex bid for H1 July at $1,030/mt FOB Korea, gradually raising it to $1,045/mt, during the Platts Market on Close assessment process, while an offer for H1 August was heard at $1,010/mt FOB Korea prior to the MOC.
Stronger demand for H1 July compared with H1 August was due to an open arbitrage to the US. Arbitrage players were, however, cautious about moving barrels for the later laycans due to uncertainty surrounding the global economy.
The backwardated US benzene market "did not inspire confidence," added a trader.
August US benzene was assessed at 382 cents/gal ($1,143/mt) on Monday, therefore, the price difference between H1 July FOB Korea and August FOB USG stood at $98.33/mt. Considering that the freight rate for shipping a 10,000 mt benzene cargo from South Korea to the US Gulf was assessed at $52/mt Monday, the arbitrage from Asia to the US Gulf was wide open on paper.
In May, almost 50,000 mt of benzene was shipped from South Korea to the US Gulf and the trend appears to be continuing for deliveries in July and August on the back of the open arbitrage, traders said.
