Americas-East naphtha arbitrage cargo loadings reach record high 918,000 mt in April.

USGC-Asia naphtha loadings in April total 706,000 mt

At least 418,000 mt of US naphtha available for June delivery in Asia

Singapore — At least 918,000 mt of naphtha loading in the Americas in April is pointed to Asia, an unprecedented high, according to S&P Global Platts cFlow and trade sources Tuesday.

However arrivals in Asia in May are slated to match December and January levels of around 600,000 mt, as vessels carrying at least 228,000 mt have been delayed, fixtures and Platts cFlow data showed.

These delayed cargoes from the US had earlier tightened the supply for the North Asian May-delivery cycle and rolled over into the June-delivery cycle, traders said. June-arrival volumes total 418,000 mt to date, which is set to increase as chartering for May-loading cargoes has only recently begun.

Previously, around 200,000 mt/month of heavy full range naphtha had arrived in Asia from the US, with incremental cargoes typically light naphtha grades, trade sources said.

The drop in US gasoline demand due to COVID-19 lockdown measures has reduced requirements for naphtha for domestic gasoline blending, prompting US producers to export excess cargoes not only from the US Gulf Coast but also the US West Coast.

The freight rate for the key US Gulf Coast to Far East voyage had skyrocketed not only from high demand for naphtha arbitrage shipments, but laden ships held up with their cargoes was also keeping tonnage tight, shipping sources said.

The USGC to Northeast Asia voyage for MR tankers was assessed at $3.2 million Monday, while LR1 freight was assessed at $5.5 million, Platts data showed. MR freight remained just below its all-time high of $3.3 million on April 23, and the LR1 freight is at a record high since Platts began publishing the assessment on June 1, 2016. Such voyages typically take 33-35 days, and could see delays due to fog or congestion in USGC ports.

"We're already seeing a slowdown in demand. Fewer cargoes due to refineries cutting rates and receivers not needing them. But we're also seeing fewer ships available for what cargoes there are - ships are sitting laden on deumrrage due to ullage and also traders taking advantage of [contango] structure in the market and likely de-facto storing barrels on ships," a US-based shipowner said.

These surplus cargoes were a welcome sight for Asian steam crackers requiring light or paraffinic naphtha grades for petrochemical production, as they had been able to snap up feedstock cargoes at $200/mt or less.

The naphtha C+F Japan cargo March average was $290.26/mt and the month-to-date average is $194.24/mt, Platts data showed. The benchmark naphtha C+F Japan cargo was assessed at $201.25/mt at Monday's Asian close, down $6.50/mt on the day.

Reflecting soft market sentiment, the structure in the Asian naphtha paper market has been in contango for the past six weeks. The front-month May/June Mean of Platts Japan naphtha swap timespread was assessed at minus $1/mt at Monday's Asian close. This contango structure has encouraged cargo holders to push back delivery dates for shipments in the hope of catching stronger price levels further down the curve, sources said.

Naphtha fixtures from the Americas to Far East:

Key: Tbn= To be nominated, NA= Naphtha, TA= Trans-Atlantic, rnr= Rate not reported, cnr= Charterer not reported