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India’s state-run oil companies seek LPG imports as lockdown, refining cuts bolster demand

Three state-run Indian oil companies are seeking LPG cargoes for April-June delivery to compensate for shortfalls caused by cuts in refining production and consumers rushing to secure cylinders during the 21-day nationwide lockdown, trade sources said this week.

Refineries in India normally maximize LPG production and with the reduction in refining rates, it was unlikely that they could continue production of LPG at near normal rates, sources said.

“Imports will have to necessarily step in to manage the gap,” one trader said. Sources said a 30% cut in refining production could reduce domestic LPG production by around 300,000 mt/year.

But import demand from the world’s second-largest LPG importer was expected to ease going into summer, with high temperatures typically seen from end June through to end September.

“Due to the seasonality effect, there is a natural dip in LPG demand in India as the weather gets hotter,” one trader said. “Statistically, there could be a swing of between 15%-30% in demand due to the seasonality impact. This will work favorably for India, as summer season has started in the south and will move across the rest of India soon.”

Other traders said Indian importers may face difficulties receiving offers for prompt April delivery cargoes, while May cargoes will only be seen clearly after key Middle Eastern producers announce acceptances of May loading term cargo nominations over the next few days.

But with Middle East producers boosting oil production, traders said there will also be abundant LPG to meet growing regional demand.

STEADY PACE OF IMPORT TENDERS

Hindustan Petroleum Corp. Ltd., closed a tender this week seeking five 45,000 mt evenly split LPG cargoes and one 20,000 mt evenly split parcel for deliveries over April and May. It was not immediately clear if the tender was awarded, or how many cargoes were purchased.

Some sources said HPCL might have warded one cargo to a European trader, though this could not be confirmed. And on Thursday, HPCL closed another tender with validity until Friday seeking four 45,000 mt evenly split cargoes.

Indian Oil Corp. will also close a tender Friday seeking two 45,000 mt evenly split cargoes for April 10-May 5 delivery.

The third company, Bharat Petroleum Corp. Ltd. is closing an import tender on Friday for 177,000 mt in five evenly split cargoes for April 10-May 5 deliveries. Prior to this, sources said BPCL also bought several FOB cargoes.

Late last month, petroleum and natural gas minister Dharmendra Pradhan said India will receive prompt LPG supplies from Saudi Arabia to meet rising demand.

The surge in Indian demand comes as Asian LPG price are in the doldrums due to abundant supply. Saudi Aramco Tuesday set its April contract prices for propane at $230/mt and butane at $240/mt, marking the third consecutive month of price decline and the lowest since December 1999, S&P Global Platts data showed. The May CP propane swap was notionally indicated at $221/mt and butane at $238/mt early Thursday.

Trade sources said there has been a spike in domestic LPG refill bookings across the country.

“Most of this is turning out to be panic booking as the national oil companies are saying that about 10%-20% of the refills booked are not being accepted by customers as their existing cylinder is not empty,” one source said.

Having said this, sources said the oil companies have placed a restriction of a minimum 15 days for the booking period. This indicates that the system is getting stretched, as LPG bottling plants are reportedly working at 125% of nameplate capacity.

Sources also said Indian port authorities have imposed a protocol for testing crew for the coronavirus before a ship has berthed. They added this involved a 14-day quarantine rule from the departure of the last port.

While some said this could cause delays for affected ships from the Middle East, others said the delays would only be for a few days and would not cause major disruptions.

But one trader said the real risk in India is if the nationwide lockdown and coronavirus outbreak starts impacting drivers in the transportation sector, who “hold the key to the lifeline”.
Source: Platts

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