Reformate arb from ARA to China slows, but high exports anticipated

Fresh interest in shipping reformate from the Amsterdam-Rotterdam-Antwerp region to China has slowed down this week, following the movement of 600,000 mt of reformate and mixed aromatics on the route from mid-September to earlier in October, according to market sources.

“The reformate market is slowing down as there are now fewer buyers than sellers but reformate is still very tight in Northwest Europe,” a gasoline trader said. Around 300,000 mt of reformate and mixed aromatics went China in the last 10 days on September and about the same amount in October, he said.

Nevertheless, export interest remains firm over the coming weeks, with some oil and petrochemical market participants expecting outflows to the tune of over 1 million mt.

An aromatics market participant said that November 10 now appeared to be the deadline among blenders to get molecules on the water and out to China.

“Huge volumes are heading to China, all moving in the period between early October to mid-November so reformate and octane will remain tight and expensive until then… it will quieten down mid-November,” another gasoline trader said. “So this makes blends of Euro grade gasoline over standard lower octane BOB quite expensive,” he added.

According to a third gasoline market participant, cash premiums for reformate in Northwest Europe were “definitely expensive but falling. There is less going to China than in the last couple of weeks but premiums are too high to make it worth blending in ARA,” he said.

Premiums for 99 RON reformate were heard discussed in the mid-60s over Eurobob gasoline barges Thursday, while premiums for 103 RON reformate were heard discussed in the 80s, down from over $100/mt last week.

THE RACE OF EXPORTS AGAINST TIME

The development came amid high export interest to China on mixed aromatics, which are mainly comprised of reformate and downstream toluene-xylene streams. These are the main feedstock for producing aromatics petrochemicals, toluene and mixed xylenes.

China’s imports of mixed aromatics are currently free of consumption taxes as they are registered as petrochemicals. But market participants said these were mainly imported for use as gasoline blend components.

Market participant expect taxes to be implemented from the start of 2018, which is driving the high export interest for cargo arrivals by H2 December. Previously, the date for the tax implementation was expected to be between May 1 and July 1, albeit it did not materialize due to complications with classification of mixed aromatics as a petrochemical feedstock or gasoline blending component.

Sources said the consumption taxes for mixed aromatics are likely to take reference to the current consumption taxes for gasoline. Earlier in the year, these stood at Yuan 1.52/liter, equating to $35/b or $295.69/mt.

But while the export deadline of November 10 looms on traders in Northwest Europe, it remained uncertain whether outflows will cease subsequently.

With mixed aromatics also being exported from Asian countries, those particularly in the Straits and the Persian Gulf region, shipments of mixed aromatics could make their way to these countries to cover potential shorts.

AROMATICS HOLD FIRM

Toluene and MX fundamentals have also remained firm throughout October, with buy ideas for mixed aromatics blending consistently heard this week at around a $100/mt premium over Eurobob.

Chemical grade toluene and MX can also be blended into the mixed aromatics pool, for their octane boosting capabilities.

With heightened buy interest, the supply front on toluene and MX now appears dry till around H1 November.

This has aggravated the supply tightness on MX particularly, as demand for downstream paraxylene remains firm within Europe, which is the feedstock for purified terephthalic acid.

Indorama nearly doubled the PTA capacity at its Rotterdam facility to 700,000 mt/year, from 380,000 mt/year, with production starting around end-July/early-August. This pulled in extra volumes of feedstock PX from within NWE, in turn strengthening the demand for MX.

S&P Global Platts last valued the October and November toluene and MX premiums over EBOB at $110/mt Thursday.

Chemical buyers have now mostly held back from showing firm spot buying interest, instead resorting to contractual off-take to meet requirements. While Northwest PX producers have been an exception and have been active this week on the MX spot market, they have so far largely price matched the buy interest from mixed aromatics blenders.

H2 OCTOBER FIXTURES

Among the latest fixtures on mixed aromatics, the Alpine Maria was heard on subjects to load a 40,000 mt cargo around October 23-25 from ARA to China for a $1.175 million lump sum and the SW Tropez I was reported on subjects to load a similar cargo around October 28-30 from ARA to China for a $1.175 million lump sum.

While around 10-15 times more volumes are expected to be exported, the fixtures so far have only been on MR vessels. These vessels are generally more expensive than the larger LR 1 and LR2 vessels, which traditionally offer lower $/mt freight values.

However, a mixed aromatics trader explained earlier that most Chinese ports could not take LR 2 vessels, which had to be sent from Europe to Singapore. The larger cargoes were then split up and partly re-exported to China and other countries, as well as utilized for gasoline blending in Singapore.

Another interesting fixture heard Thursday was Torm Camilla, which was heard to be co-loading on October 23 a 37,000 mt cargo of gasoline and reformate from Sarroch, Italy, and Sines, Portugal, with discharge in the UK Continent region. However, it was uncertain whether the reformate portion would subsequently be exported to China as part of a larger 40,000 mt mixed aromatics cargo.