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ABS Arbitrage is Opening From Europe to Asia

September 15, 2020
The markets are diverging to such an extent that threaten to impact the normal flow of trade.

An arbitrage opportunity is opening up that could soon see European sellers increase exports of acrylonitrile butadiene styrene (ABS) to Asia.

Europe is by far a net importer of ABS from Asia. The slice of Asian imports in Europe has increased over the years and now represents about 40% of the market.

The usual flow of business, at least seen during the past few years, sees competitive Asian imports in Europe and an expanding market share.

The arbitrage occasionally closes and tightens the European market. But this is often short-lived and the market soon returns to seeing competitive imports from Asia.

However, in recent weeks, the pandemic seems to be changing this picture. The demand recovery has started to diverge with a much more vibrant recovery in China. As a result, prices in Asia are rallying and trading as high as $1800/mt.

At current exchange rates this price level is around €1500/mt, much higher than current prices in European.

If this current price gap is sustained or indeed widens, ABS sellers could start to ship significant volumes to China. This in turn could create a shortage of ABS for some European buyers and push up prices during a period of relative low demand compared to Asia.

While demand is gradually getting better in Europe, the recovery has been much slower than in China. Moreover, the recent increases in infections lowered expectations of a stronger rebound before the end of the year.

The retreat in imports, however, should ensure a balanced market and prevent further losses in margins. In fact, in some cases, due to the absence of Asian volumes, as it is already happening, European sellers could even widen margins.