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Actionable Analysis for Short-Term Markets

October 2021

Imports for Japan to rise this winter on low stocks

Low inventory levels and the economic recovery from Covid-19 are expected to increase 2021 imports for Japan to levels seen in 2019 at 10.8 MMt/y – up from 9.8 MMt/y in 2020. Japanese inventory levels are at the very bottom of the five-year range heading into the winter when residential demand is forecast to drive imports higher. High prices have decreased the incentive to store and worsened the inventory situation in Japan following 1Q 2021. Japan will need to increase imports in the near term to have adequate supplies for the approaching cold weather. The current forecast calls for roughly 2.8 MMt/y in 4Q 2021, but there is plenty of upside potential. Export availability may be a limiting factor.

High natural gas prices are having both positive and negative effects on the LPG market for Japan. On one side of the equation, high natural gas prices mean that demand for LPG in heating will increase as the alternative to gas. On the other, it means LPG prices will rise and the spread between naphtha and propane will increase. This dynamic would put LPG out of the petrochemical feedstock slate. Imports may be higher than currently forecast if heating demand is higher than expected. The only issue is sourcing the LPG. Japan has sourced more LPG from the US, Canada and Australia lately. South Korea has done well to keep inventory levels at suitable levels which means that Japan will likely buy cargoes from one of these three sources away from South Korea if the need strikes.

Looking past the upcoming winter, Japanese import growth is forecast to slow which is different from much of the rest of Asia. Imports are forecast to grow from 10.8 MMt/y in 2021 to 11 MMt/y in 2022 and remain around that level in 2023. As the rest of Asia imports grow, the share of LPG headed for Japan as opposed to the rest of Asia will decline. The slow rate of growth for Japanese imports is mostly due to declining residential demand for LPG except for the winter months when imports will be the highest.

Japan Storage levels and five-year range

Japan LPG import forecast

Asia Pacific LPG import forecast and Japan’s % of total regional imports

 

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