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US LPG cancellations could reach 7-10 cargoes in June as Asia arbitrage shuts

About seven Eastbound LPG cargoes due to load in June from the US are canceled as the arbitrage is shut due to softening Asian prices and firm Very Large Gas Carrier rates, even as healthy Middle East supplies satisfy demand in this region, trade and shipping sources said.

Cancellations could be as high as nine to 10 cargoes, as north Asia is seeing weak demand in June at the onset of summer, while Chinese propane dehydrogenation plants are just returning from scheduled maintenance or outages, Asia and US sources said.

“Netbacks US/East have been closed, hence it’s tough for many parties to conclude shipping at these levels,” a shipping source said.

“It’s a bit strange market, as freight has been going up ex-US in June at the same time as netbacks are not in favor. We see about 16-17 fixtures done in June so far ex-US and there should at least be 10 more [fixtures], so I wonder if more cancellations will come or not. Shipping looks quite tight for June ex US.”

June-loading US cargoes due to arrive in Asia in July are estimated at 2.3 million mt. US May-loading cargoes due to arrive in Asia in June were estimated at 2 million mt, trade sources said.

VLGC rates on the Houston-Japan route rose to $95/mt May 19, the highest since hitting $107/mt Jan. 26, S&P Global Platts data showed.

Another source said the arbitrage for June is about $113-$110/mt and with current Houston-Japan freight in the mid-$90s/mt, it did not leave much for terminal fees.

Difficult market

Freight has also been boosted by competing shipping demand in the Middle East, where major producers Saudi Aramco, Abu Dhabi National Oil Co and Qatar Petroleum have accepted June-loading term cargoes in line with nominations, while QP and Kuwait Petroleum Corp. have also been selling May and June-loading spot cargoes.

This helped drive Middle East-Japan rates to $64/mt May 19, the highest since touching $65/mt Jan. 26, before easing to $63.50/mt May 19, Platts data showed.

Healthy Middle Eastern supply was also driven by Iranian exports, estimated at 400,000 mt loading in April.

With Indian spot demand showing initial signs of returning from a pause, Indonesia relying more on term cargoes, and north Asian petrochemical makers showing isolated appetite whenever LPG’s discount to naphtha deepens beyond $50/mt, regional buyers are turning to Middle East cargoes that have been hovering at discounts of midteens to the Saudi Aramco Contract Prices, FOB basis.

Meantime, European demand for US cargoes is slowly growing, offering an alternative destination whenever Asian prices come under pressure, traders said.

Freight has further received a boost as 13 ships have been sent to dry docks mainly in China, as well as in Indonesia, the Middle East and the Mediterranean, according to Kpler data.

A source in the US said the market “is very difficult now” though a few terminals may be attempting to resell canceled slots at lower prices, and are attracting a few buyers.

Another US source said he heard as many as 10 cancellations but was not sure how many were confirmed, adding that four were confirmed on his record with some talks of deferrals, while a European trader might have canceled a few cargoes.

He said even though the arbitrage is closed, it could still work if traders could buy spot cargoes at a good price and reduce Panama Canal waiting costs.

In canceling a term cargo, a company opts to pay a cancellation fee rather than lift the product to sell in a weak market. That fee can be as much two-third the cost of lifting, traders said.

Platts assessed CFR Japan front-month propane price on May 19 at $546/mt, up from $508/mt April 20, the lowest since Dec. 7, 2020.

CFR Japan prices for May 1-19 averaged $539.08/mt, slightly below $541.70/mt for the same period in April, and $304.04/mt for the year ago period, Platts data showed.
Source: Platts

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