Chinese LNG ignite deal-making spree as JKM drops below $10/MMBtu

Chinese LNG buyers were on a spree late Jan. 9 with some 6-8 cargoes changing hands following the sharp decline in Asia-Pacific spot prices, market sources said.

According to various sources, these 6-8 cargoes that traded in China were scheduled for delivery from end-January to early March at $9.60-$10.60/MMBtu. The buyers were primarily national oil companies and second-tier buyers, while major portfolio traders were reportedly the sellers.

During the physical Platts Market on Close assessment process Jan. 9, PetroChina bought from Shell a 3.2-3.4 Tbtu cargo for Feb. 10-12 DES JKTC at a flat price of $9.60/MMBtu.

“We made purchases primarily due to lower prices, given the ongoing weak fundamentals in downstream demand,” said a Chinese buyer.

Several industry players indicated that some sellers were rushing to clear their cargoes amid falling prices, leading to an apparent surplus of supply for February when prices begin to trend downwards.

Price Arbitrage

“We were attracted by lower prices and potential price arbitrage between international and domestic prices,” another Chinese source said.

The downtrend in domestic LNG prices was driven by bearish fundamentals in the region. China’s domestic trucked LNG prices stood at around Yuan 5,000/mt, and market sources anticipate the possibility of prices falling below this mark.

Nonetheless, the significant fall in Asia-Pacific spot LNG prices suggested an existing positive arbitrage between international and domestic prices.

“Importers who purchased cargoes under $10/MMBtu could evidently turn a profit by selling the LNG cargoes to downstream entities in China,” an importer said.

Nevertheless, downstream end-users were reportedly not active buyers of cargoes as most of them were still waiting for an even larger decline in prices.

“If domestic LNG prices experience a rapid and unexpected decline due to sellers competing to attract buyers for demand coverage, the arbitrage could close swiftly,” a second Chinese market source said, adding that the market required some time to stabilize and to determine whether domestic LNG prices should dip below Yuan 4,800/mt for February and March in the event that prices fall below prevailing levels.

Price outlook

“Multiple tenders and bilateral trades seem to provide support to JKM prices,” a Northeast Asian source said.

Market participants’ expectations suggest that JKM prices for prompt cargoes will likely hold steady in the near term. Buyers, sensitive to pricing, anticipated demand to recover only around March when industrial consumption will likely resume.

“The market’s trajectory depends significantly on weather updates in Europe and Asia in the following week,” an Asian importer said, adding that news of a cold snap in late January could induce volatile price movements.

Platts assessed Jan. 9 February JKM at $9.809/MMBtu, indicating a 93.9 cents/MMBtu or 8.7% decline day on day, S&P Global Commodity Insights data showed. Platts assessed H1 February at $9.698/MMBtu, or at a discount of 56.2 cents/MMBtu to the JKM March derivatives, and H2 February at $9.920/MMBtu, or at a discount of 34 cents/MMBtu to the JKM March derivatives.
Source: Platts