This current feature was extracted from the latest edition of Poten’s LPG in World Markets, a monthly service published on February 9, 2024.
The Far East LPG market sprung to life during early February 2024 as the region geared up for the long break for Lunar New Year celebrations. As many as three buy tenders were floated on February 5, 2024, that Poten was aware of. A total of two buy tenders were floated during the first two days of the month. Two more spot buy tenders were seen on February 6.
Although three buy tenders were heard to be cancelled, overall market sentiments appeared positive largely on recovering demand.
Public bids for half propane cargoes for arrival in the second half of March were placed at a discount to March Far East Index (FEI) swaps at the start of February, which changed to a premium soon thereafter. A public deal was also concluded at a premium of $8/t against March FEI on February 6.
In January, a major share of public bids for front month half cargo propane were placed at a discount to FEI swaps.
Public offers have also been aplenty so far this year; however, they have been outnumbered by bids, thus lending some support to regional prices; however, flat prices have softened.
CFR Japan prices started the year at $673.50/t for propane and $683.50/t for butane, which softened to $603.50/t and $617.50/t, respectively, as of February 6.
Average PDH Operating Rates in China
At least eight Chinese PDH operators were out with tenders to secure cargoes so far in 2024, though two of those have already been cancelled. Downstream margins remain negative and operating rates remain depressed, a decline in regional LPG prices appears to have generated some interest in purchasing LPG by Chinese buyers.
Several PDH units, such as Zhejiang Petrochemical, Jiangsu Ruiheng, Tianjin Bohai Chemical, and Hebei Haiwei, started operations so far this year. However, market sources indicate that 10 PDH units are still down. While six units may start operations during February-April this year, two may re-start later during May-June. Re-start dates for two more units are unclear, currently. There were reports that Oriental Energy may run its new 600,000 t/y PDH plant in Maoming, Guangdong, at 90%.
As such, the operating rates of PDH units in China may improve in coming weeks.
Several tenders from Chinese PDH units for half propane cargoes were heard awarded at a premium of low-to-mid single digit levels over March FEI. A couple of full propane cargoes of propane were also heard to have fetched premiums of low-mid single digit levels over March FEI.
On the supply side, Asia appears well supplied even though there were fewer loads both in the Middle East as well as in the US in January. Market sources said that the European and Mediterranean buyers appear less interested in buying VLGC parcels from across the Atlantic, due mainly to the narrow arbitrage as well as because of declining heating demand. Therefore, a major share of US tons are trying to find a home in Asia, especially as the Panama passage has become easier to traverse and freight markets have softened.
Moreover, Asian naphtha price assessments remained firm – $659.75/t at the start of the year to $660.75/t as of February 6. A wider propane-naphtha spread and tight naphtha availability within Asia prompted a few Far Eastern steam crackers to substitute a portion of their feedstock from naphtha to LPG. Not surprisingly, South Korean buyers were seen floating buy tenders to secure LPG cargoes in January and February 2024.
SK Advanced was planning to re-start the 600,000 t/y PDH plant in Ulsan in the first half of February. The plant has been down since September last year for maintenance works. Taekwang Industrial’s 300,000 t/y PDH plant in Ulsan was reportedly running at an 80% utilization rate, unchanged m-o-m. LG Chem was planning to switch 5% of its feedstock requirement from naphtha to LPG in February.
Forward prices also indicate that propane may retain an advantage over naphtha for the next three-to-four months in the region. Regional naphtha supply has been tight due to the planned refinery turnarounds in the Middle East, coupled with dangers associated with voyages via the Red Sea. Russian supply has also been curtailed due to some unplanned shutdowns.
Japanese buyers may also look to replenish LPG inventories which have declined during winters.
In Taiwan, Formosa Petrochemical has already started cracking some LPG. After cancelling a spot buy tender for a half or full propane cargo issued at the end of January, Formosa issued another tender during early-February for a full propane cargo which was heard awarded at mid-single digit level of premium over March FEI.
Among other downstream units in the region, Hyosung Vina also sought a cargo for its PDH unit in Vietnam around end-January which was heard awarded at a discount of low/mid-single digit level against March FEI.
However, market players sounded cautious even though there has been a resurgence in activity during early February. A softer and backwardated crude oil market may weigh down naphtha prices, thus wiping out the advantage propane currently has. Depressed downstream margins remain a big concern.
On the other side of the Pacific, Mont Belvieu prices remain high and stock levels down. A trader pointed out that prompt Chinese demand was covered, and the country would go for long holidays during Lunar New Year celebrations.
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