Analysis: Asia, Middle East LPG prices rally as Saudi Arabia adds to China, India demand

Highlights

US shipment delays prompt Chinese buyers to seek alternatives

Saudi ATC seeks LPG for Jizan complex ahead of Q1 startup

Other Middle East supplies at comfortable levels

Singapore —
Asia-Pacific and Middle East LPG prices have rallied this week on recovering demand from China and India, North Asian buyers stocking up until February due to a severe winter weather forecast and domestic demand emerging in Saudi Arabia, traders said Oct. 16.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.


Register Now

Delays in November-delivery US shipments to Asia caused by recent hurricanes, which some traders estimated at around 20 cargoes mostly bound for China, have also prompted Chinese buyers to seek alternatives, including from the Middle East and Canada, trade sources said.

Some of these US cargoes could arrive in Asia in December, they said.

The operating rate of China’s propane dehydrogenation plants rose to 86% of capacity in September from 85% in August as two new plants — Zhejiang Petrochemical and Zhejiang Huahong — continued to ramp up after starting operations in July.

India’s state-run Indian Oil Corp and Bharat Petroleum Corp. Ltd. have purchased September and October deliveries via spot tenders and sought term cargoes for 2021 supply. Indian lifters were also heard to have requested additional November-loading term cargoes from ADNOC, sources said.

The demand saw FOB Middle East differentials flip to a premium of $1/mt Oct 14 and $3/mt Oct. 15 after being in discount since April 30, S&P Global Platts data showed. The discount to the Saudi CP was as deep as $31/mt on Aug. 14, the data showed.

Strong demand has helped to offset ample supply from the Middle East. Qatar Petroleum and Abu Dhabi National Oil Co. have announced acceptances of November-loading term cargo nominations without cuts or delays, with some lifters getting advanced dates.

But ahead of Saudi Aramco’s announcement of November term nominations next week, the market has seen a rare purchase tender from Aramco Trading Co., or ATC, seeking 100,000 barrels each of propane and butane for Nov. 1-7 delivery to Jizan in Saudi Arabia.

The long-delayed 400,000 b/d refinery and petrochemical project at Jizan on the Red Sea coast is expected to start up in Q1 2021, Aramco CEO Amin Nasser said in August.

“Asia-Pacific [market] is rallying because of recovering demand, better than in October and ATC was also looking for cargoes, lending support to CPs,” a trader said, adding the LPG for Jizan’s alkylation unit indicated the integrated complex was getting ready to start up as scheduled.

PRICES AT 9-MONTH HIGH

The month-one November Saudi propane CP rose $15/mt day on day to $436/mt Oct. 15, the highest hitting $501/mt Jan. 31, Platts data showed. In mid-morning trade Oct. 16, the November propane CP swap was indicated at $437/mt and butane at $10/mt above propane, according to brokers.

Front-cycle H2 November delivery CFR North Asia propane was assessed up $13/mt on day at 467/mt Oct. 15, the highest since hitting $483/mt Jan. 24, Platts data showed.

Saudi Aramco’s acceptances of October-loading term cargoes came with around two cargo cancellations. Traders initially expected that following

Aramco’s sale of a prompt Oct. 24-25 mixed cargo to Vitol last week, which some attributed to a glitch at a domestic petrochemical plant, Aramco could

have enough supply to meet November term nominations in full. But with the latest demand from Jizan, the market was more uncertain.

Healthy Middle East supply also came from spot offers from Kuwait Petroleum Corp and QP. KPC sold 22,000 mt of butane for end-October loading at a double-digit premium to the October CP, a trade source said. The cargo was bought by a trading house and sources said it could be destined for India. Some sources said the buyer could be Reliance, though this could not be immediately confirmed.

This contrasted with KPC’s previous tender of a 44,000 mt evenly split cargo for Oct. 17-18 loading, which sold at a discount of $15/mt to October CPs.

QP’s offer via tender of a 45,000 mt propane cargo for Nov. 12-14 loading was also heard to have been awarded, though no details were heard and some sources said it could be China-bound. QP was previously reported to have sold via tender 46,000 mt of propane for Oct. 24-25 loading to Petredec at minus $30/mt to October CPs, FOB, trade sources said.

The improvement in FOB Middle East differentials also followed two bids in the Singapore physical market this week: Azeri trader Socar sought up to 45,000 mt of evenly split LPG Oct. 14 for Nov. 14-21 loading FOB Middle East at parity to November CPs, while Petredec Oct. 13 bid for a 44,000 mt evenly split cargo for mid-November loading, FOB Middle East, at November CP minus $1/mt.

With the strengthening market, the November/December CP propane swap backwardation widened $3/mt on day to $7/mt Oct. 15 and was indicated mid-morning Oct. 16 at $5/mt, according to brokers.

The December/January propane CP swap widened $1/mt on day to $5/mt Oct. 15 and was holding steady in early Oct. 16 indications.