The US Gulf Coast-Asia arbitrage for isomer-grade mixed xylenes on paper does not appear to be re-opening any time soon, as arbitrage economics continued narrowing, plunging to a five-month low Tuesday, Platts data showed.
"The US-Asia isomer-MX [arbitrage] doesn't seem to be re-opening in short term, as [the] US market seems to be stable or firm, while Asia market is weaker at the moment," a trader said Wednesday.
The spread between Asia's benchmark CFR Taiwan and FOB USGC isomer-MX prices plunged to a five-month low of minus $84.06/mt Tuesday, down $22.30/mt from the previous day, Platts data showed.
Its last low was at minus $104.05/mt on September 19, 2012.
Traders have been eyeing the re-opening of the arbitrage on paper since mid-February with the easing of USGC isomer-MX prices, which fell from a five-week high of 466 cents/gallon ($1,411.98/mt) on February 11 to a three-month low of 442 cents/gal on March 4. This saw the Asia-USGC spread rising in tandem to a four-week high of $21.09/mt on February 26. But arbitrage economics have since narrowed, flipping into negative territory on March 1, falling to minus $61.76/mt Monday as a sluggish downstream paraxylene market in Asia pulled down isomer-MX prices. Falls were further extended Tuesday, after the USGC price rallied 10 cents/gal to be assessed at 452 cents/gal, against a more gentle day-on-day rebound of $8/mt in the CFR Taiwan isomer-MX price. For arbitrage economics to be workable, the Asia-USGC spread should be above $50/mt, based on a term charter freight rate from USGC to South Korea and Taiwan.
Spot freight rate for the same route is currently heard at $75/mt for a 5,000-mt BTX cargo. The USGC-Asia arbitrage on paper has been shut for more than three months since November 20, when the spread was at $41.99/mt. Typically, 800,000 to 1 million mt/year of US-origin isomer-MX moves to Asia, which is structurally short.
Meanwhile, a tightly-shut paper arbitrage has lent a floor to Asian isomer-MX prices that are under pressure from falling downstream prices. "Closure of the US-Asia isomer-MX arbitrage on paper has relatively supported Asian isomer-MX prices amid nosediving downstream PX and sluggish purified terephthalic acid markets this week," a market source said.
