The open arbitrage from Asia to the US Gulf for toluene and mixed xylenes has started to attract some interest, market sources said Tuesday.
Two traders were heard to be shipping a combined 18,000 mt of toluene from South Korea to the US Gulf on a vessel loading Tuesday.
The movement comes despite concern over the backwardation in US Gulf toluene price. Asian traders had said earlier they were not interested in working the arbitrage due to uncertainty over forward prices in a thin US Gulf market.
The FOB US Gulf-FOB Korea spread has been narrowing in recent days. On Monday, the spread between FOB US Gulf and FOB Korea toluene stood at $119.34/mt, down $26.12/mt from the day before as FOB US Gulf prices fell while the FOB Korea price rose.
Earlier, FOB US Gulf prices were firmer relative to FOB Korea amid short covering, a source told Platts.
"Prompt barrels for toluene were at a premium to cover short positions. Demand for blending has not been there," the source said.
Despite the decline, the FOB US Gulf-FOB Korea spread is still more than twice the cost of freight, with freight for a 10,000 mt cargo from South Korea to US Gulf assessed at $51-53/mt on Monday, unchanged from Friday.
Separately, Asian isomer-mixed xylenes are also making their way to the US Gulf as prices in the region slump in tandem with downstream paraxylene.
Between May 24 and June 14, the arbitrage between Asia and the US was wide open, with Asian prices at least $100/mt below US spot price for loading in the second month. The arbitrage was widest on June 6, when prices closed at $987.50/mt FOB Korea and $1,200.80/mt FOB US Gulf.
On average, Asian MX spot was $151.28/mt lower than US prices between May 24 and June 14. For parcel sizes of 5,000-12,000 mt, freight from South Korea to US Gulf is around $55/mt.
Sources said at least 10,000 mt of MX have been fixed for July loading but declined to name the parties involved.
Asia was structurally short of MX until two years ago, when China ramped up production. However, since it was not possible for China to export its MX due to tax issues, the rest of the region had to continue importing US MX.