European Reformate Prices Sag after Arbitrage to China Shuts

European reformate prices have dropped sharply as the Europe-China reformate arbitrage route has closed following a drop in domestic gasoline prices in China, sources said this week.

Last week, the Chinese government decreased domestic gasoline prices by Yuan 310/mt, a Chinese trader said, leading to the closure of the Europe-China arbitrage route for blend components such as reformate.

Since mid-October, China had been pulling high volumes of reformate from Europe, up to 100,000 mt/month, a Europe-based gasoline trader said this week.

"It's a flow that happens or doesn't happen. It's not a constant flow of demand," he said.

Reformates are aromatic components of high-octane gasoline produced from low-octane naphtha processed in a catalytic reformer.

Reformate is currently pricing at a $50/mt premium versus FOB Rotterdam Eurobob barges, the trader said, down from levels heard early last week of $60/mt.

Eurobob was last assessed at Tuesday's European close at $961/mt, Platts data shows.

The surge in Chinese demand from mid-October helped push the reformate price to levels between $65-90/mt versus Eurobob barges, traders said.

"30,000 mt reformate was shown last week [in the Amsterdam-Rotterdam-Antwerp trading hub] and that is the most for a long time," he said. "I think 70,000 mt is also shown from the Baltics on a typical month, plus smaller lots in ARA by barge," a second Europe-based trader said this week.

However, there are now increasing homes for reformate in Europe as its premium versus EBOB falls, the first Europe based trader said.

"Chinese demand for reformate has dried up; there's more finding homes in Europe," the first Europe-based gasoline trader said. "A couple of 10,000 mt reformate parcels traded [in Europe] at $50/mt late last week."

Moreover, the Europe-China arbitrage route for reformate is unlikely to reopen as the Chinese government plans to impose a consumption tax of Yuan 1.0/liter ($216.91/mt) for MTBE and other blend components from January 1, 2013.

Traders said the newly imposed taxes would certainly have a detrimental effect on blend component imports into China in 2013.

"For mix aromatics the imported volume is 2.3 million mt annually, the new tax will cut this volume by half. Where will the 1.15 million mt go? To the Southeast Asian market," a Chinese trader said Wednesday.