The prospect of prolonged disruption to eastbound shipments of European naphtha is supporting prices in Asia-Pacific, as attempts to free a giant container ship that is blocking the Suez Canal run into a third day.
The April east/west naphtha swap contract — which tracks the difference between delivered naphtha cargo prices in Japan and northwest Europe — has risen on news that the blockage may last longer than initially anticipated. The contract was trading at $16.50/t at around 12:00 GMT today, up from an intra-day low of $13.75/t recorded yesterday afternoon. The chief executive of Dutch marine infrastructure company Royal Boskalis Westminster, one of the salvage firms tasked with removing the vessel, said it is impossible to know how long the ship will disrupt traffic in the canal but that it could take "days to weeks".
The Suez Canal connects the Mediterranean to the Red Sea, offering the quickest sea link between Europe and Asia-Pacific. Around 1.45mn t/month of naphtha transits the canal on the eastbound route, according to Argus tracking and Vortexa data, mostly bound for petrochemical plants in South Korea, Japan, China and Taiwan. Two naphtha tankers are currently waiting at the northern entrance to the canal, both carrying Black Sea term cargoes. The Spetses Lady is carrying a 90,000t cargo from the Russian port of Novorossiysk on behalf of trading firm Trafigura, and the Bowfin is carrying a 75,000t cargo from Tuapse. Both cargoes were loaded on 15 March and would take around 30 days to complete the journey to Asia-Pacific under normal circumstances. The Spetses Lady arrived at Port Said at the northern end of the canal at around 16:00 GMT on 23 March and the Bowfin arrived an hour or so later.
An extended closure could affect several scheduled eastbound tanker movements. Trafigura has at least three large tankers scheduled to carry naphtha through the canal in the coming weeks. The Kmarin Reason is due to load 80,000t from Skikda in Algeria on 29 March, the BW Lena is booked to load 60,000t from Milazzo in Sicily on 1 April, and the Navig8 Providence will load 80,000t from Novorossiysk on 8 April. Trafigura had the Sea Star on subjects to load 90,000t from Skikda on 25 March but the booking failed and the tanker was subsequently chartered by an unknown party to load 90,000t from an unspecified Black Sea port on an unspecified date. Spanish firm Repsol's booking of the Front Altair to load 85,000t from Cartagena in Spain on 27 March is the most likely of the scheduled loadings to be affected by the canal's closure.
The widening spread between naphtha prices east and west of Suez may make the alternative, longer route around the Cape of Good Hope on the southern tip of Africa a viable option. A supply overhang in the Mediterranean and Baltic has bolstered naphtha flows from Europe to Asia-Pacific in recent weeks, and at the moment there are few other workable arbitrage destinations for European cargoes.
