US LPG sees strong export demand
Houston, 27 September (Argus) — Asia term buyers of US LPG are continuing to ship cargoes into a closed arbitrage on paper ahead of anticipated heating demand in the fourth quarter.
The US propane arbitrage with Asia has been closed throughout September. The netback between October in-well propane prices at Mont Belvieu, Texas, versus month three FEI swaps yields on average a netback of Mont Belvieu +3¢/USG during September. That's below cancellation economics for many term buyers. Yet the loading schedule for October shows only one, possibly two, confirmed cargo cancellations.
Market participants say rising demand for propane in Asia is continuing to draw US cargoes that direction, despite the closed arbitrage, as term buyers use time-chartered freight. At the same time, many anticipate the unfavorable paper arbitrage will widen next month as physical prices in Asia rise to a higher premium relative to paper.
Today the US Energy Information Administration (EIA) reported a 2.4mn bl draw in propane inventories the week ended 22 September, as shippers catching up from storm-related loading delays exported at least 1mn b/d.
US propane inventories are down 24pc from year-ago levels because of the steady stream of exports, and so far the US market appears to be taking cues from international prices as domestic concerns about supplies heading into the winter take a back seat to term buyers in Asia. Propane prices at Conway, Kansas, stood at a 5¢/USG discount to Mont Belvieu as midcontinent barrels continue to move south into the export market.
Demand for propane for petrochemical cracking is weak, as the higher prices lead more ethylene crackers to use ethane, or even natural gasoline, given the current price of feedstocks. As a result, nearly all of the demand seen from the Gulf coast is coming from exports.
At least 10 cargoes were cancelled in August. September saw only five or six cancelled cargoes.