The backwardation of the Asian benzene market between H1 August and H1 September surged to $44/mt FOB Korea Wednesday, up $16/mt from Tuesday, as the open arbitrage from Asia to the US caused traders to bid up prompt FOB Korea cargoes, market sources said.
"The prompt Asian market is getting tight and that's the main reason for the steep backwardation," a South Korean trader said Thursday.
During the Asian trading day Wednesday, August bids were heard as high as $1,070/mt FOB Korea. But H1 August was assessed at $1,063/mt FOB Korea at the Asian close Wednesday as crude oil prices retreated during the Platts Market on Close assessment process. Meanwhile, H1 September was assessed at $1,019/mt FOB Korea as an offer was heard around $1,021/mt FOB Korea.
US benzene prices have been rising due to supply tightness caused by production cuts and short-covering, US-based market sources said.
September US benzene was assessed at 380 cents/gal, or about $1,137/mt, on Wednesday, putting the spread with H1 August FOB Korea benzene at $74/mt. It typically takes about 40-45 days to ship cargoes from South Korea to the US Gulf.
With the freight rate for shipping a 10,000 mt benzene cargo from South Korea to the US Gulf assessed at $49/mt Wednesday, the arbitrage is currently open on paper.
About 50,000 mt of benzene was heard to be have been fixed for loading in July from South Korea and headed to the US Gulf, Platts reported earlier. While no August-loading cargoes were heard to have been fixed yet, traders said inquiries were robust and the trend would likely continue.
