Abundant Western LPG arrivals to Asia seen in Jan-Feb, easing tightness
LPG arrivals to Asia from the West are estimated at 2.6 million mt in January and are expected to rise to 2.8 million mt in February, helping to alleviate the recent supply tightness in the region which had sent prices to around one-year highs, trade sources said this week.
These cargoes originate from the US, Canada, West Africa and the Mediterranean, or North Africa, they said.
Cargoes arriving to Asia from the US in January are estimated at 2.2 million-2.3 million mt, while February arrivals are expected to be around the same volumes, or slightly higher, sources said.
These are higher than monthly average shipments from the US to Asia of around 1.7 million mt in 2019, they added.
“I would estimate that out of the Western volumes, 70%-80% are US molecules,” one trade source said.
Another source said about 1.82 million mt are seen heading to Asia in January, while others expect higher volumes.
Far East is expected to receive 2.1 million mt of LPG from the US in January — 1.8 million mt propane and 300,000 mt butane, Kpler LPG analyst Ilya Niklyaev said.
“Regarding February … there are a lot of ballast VLGCs [Very Large Gas Carriers] that are currently in the US Gulf Coast, so the next two to three weeks, loadings from there are expected to be very strong. So, I wouldn’t be surprised at all to see February arrivals to Far East from the US even higher than the January arrivals,” Niklyaev said.
Trade sources said the West-to-East arbitrage has been wide open in recent weeks, with CFR North Asia propane hitting a more than 12-month high of $627/mt on December 30, S&P Global Platts data showed.
The tightness was also due to limited spot supply from the Middle East, as well as cuts and delays in acceptances by key producers in term cargo nominations for January loadings.
SELLERS REEMERGE WITH OFFERS
Compounding the tightness, the region has not seen cargoes from Iran in recent months due to strict enforcement of US sanctions, while shipping sources said Iran was also facing difficulties in accessing ships for its aging fleet.
Demand from India and Indonesia had also been healthy, while end-year stocks in North Asia were low. In the face of lower Middle Eastern supply and strong propane prices, trade sources said that some Chinese propane dehydrogenation plants have been delaying the restart of their facilities to mitigate costs till economics work in their favor.
Propane prices at the Enterprise NGL storage complex in Mont Belvieu have been weak in January. This was in view of a backlog of barrels due to export capacity constraints, as the Enterprise terminal expansion is not fully ramped up yet, while production has been growing, trade sources said.
As more Western cargoes arrive in Asia at the start of the new year, sellers — who had been largely absent from the physical spot market where only bids were seen in recent weeks — have reemerged to make offers.
Trading firms Total and Vilma on Wednesday were heard offering H1 February and H2 February-delivery propane cargoes, respectively, while South Korea’s SK Gas sold into a bid by Trafigura for a H2 February delivery lot.
Expectations of abundant Western volumes pushed CFR North Asia propane to $574/mt Wednesday, the lowest in three weeks, and down $49/mt day on day, outstripping the $1.44/mt dip in March ICE Brent crude futures from the previous Asian close, according to Platts data. The premium between H1 February propane over the February CP swap also halved to $34/mt Wednesday.
Declining propane prices have also steepened the discount of FEI propane to the Mean of Platts Japan naphtha assessments, which on Wednesday was valued at $40.25/mt, compared to $21.5/mt the previous session.
This is making propane attractive for petrochemical makers, such as Taiwan’s Formosa Petrochemical, to switch to as alternate feedstock and contrasted with the $33/mt premium which FEI propane commanded over MOPJ naphtha on December 30, according to Platts data.