Asian MTBE market participants are not working the Asia-Europe MTBE arbitrage even though it is open on paper on logistics and volatility concerns, industry sources said Wednesday.
According to the Platts assessment on Tuesday, Northwest Europe MTBE prices were at $1,215/mt FOB ARA and Asian MTBE prices, $1,128/mt FOB Singapore. Factoring freight costs of around $70-80/mt, Asian material can land in Rotterdam at $1,198-1,208/mt and turn a small profit.
But thus far, there have been no reports of any attempts at working the arbitrage, or much interest seen at all. Industry observers said, firstly, logistics were a little tricky, as it required more time and resources to secure a vessel for the product and route.
Both markets were also in backwardation and had seen a fair bit of volatility this year, making the endeavor a high-risk one, sources said, for if price trends make a turn south, the arbitrage window could collapse very swiftly.
From the beginning of this year, Asian MTBE prices have risen $206/mt, or 22%, to $1,128/mt FOB Singapore, according to the Platts assessment on Tuesday. European MTBE values have however, surged by $300/mt, or 32.8%, to $1,215/mt FOB ARA
Likewise, the MTBE to gasoline factor, which measures the ratio between the daily assessment for MTBE FOB Singapore and 92 RON gasoline, strengthened 0.068, or 6.4%, from 1.056 to 1.124 Tuesday, still lagging the rise in Europe. Over the same period, the MTBE factor in Europe, rose 6.6%, or 0.0073, or from 1.107 to 1.18 as of Tuesday.
While gains in the NWE market were grounded in a similarly bullish Eurobob gasoline market, gains in Asia were much less gasoline-driven. The MTBE/gasoline spreads in Asia were at a year-high, highlighting poor blend values.
Based on assessed gasoline prices on Tuesday, the MTBE/92 RON gasoline spread was $14.83/b, the MTBE/95 RON spread was $12.71/b and the MTBE/97 RON spread was $11.3/b.
Still, inter-RON spread remained thin and the theoretical blended up value of 95 RON gasoline from MTBE and 92 RON gasoline was $1.25/b higher than what current 95 RON values were. The price distortion underscored how strongly Asian values were driven by Europe and US prices, as opposed to gasoline indications here.
Industry observers said Asian values were pretty much driven by bullish European and US prices now, calling the region a "follower", albeit not trending in the exact same path. The outlook for gasoline in those regions were similarly bullish, but the forward market structure in Asia was still in a slight backwardation, making substantial arbitrage attempts tricky.
In addition, traders surmise a correction in both regions were in order, after sizeable sustained gains in the first quarter, and hence were hesitant to make a call on the arbitrage.
There was no doubt that originally Asia-bound Arab/Persian Gulf material was now heading for European shores.
"For them definitely," said a Singapore-based trader commenting on the Middle East MTBE market. "Location-wise they are in the zone."
A large majority of Asia's supply came from the AG as well, so Asia's producers were happy enough to see the region tighten up as that gave them better prices.
"We are still able to sell in this region since Middle East cargoes are going to Europe," said a Southeast Asian based producer. "We are not eying the arbitrage -- guess it is too far."
