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Viewpoint: US LPG aligns with global indices

26 Dec 2017 13:42 GMT
Viewpoint: US LPG aligns with global indices

Houston, 26 December (Argus) — US propane prices aligned with delivered prices into Asia in 2017 as strong petrochemical demand and ample US terminal capacity allowed consumers to dictate global pricing.

The Argus Far East Index (FEI) , the benchmark for delivered propane prices into China and Japan, averaged only a $1.18¢/t premium versus delivered US prices during the fourth quarter of this year, down from a $37/t premium seen during the first quarter.

US delivered prices into the region, measured using Mont Belvieu prices plus terminal fees and spot freight rates, swung to a premium versus the FEI at various periods during the second half of the year. US delivered prices to Asia averaged an $11/t premium to the FEI during the latter half of June, resulting in at least five cargo cancellations for July loadings and another 10 in August.

The narrow netbacks to Asia, the largest consumer of LPG, left US spot fob rates near cancellation economics for much of the latter part of the year.

Strong demand from PDH units in Korea and China, coupled with underlying volumes required for wintertime heating in Japan, kept US term cargoes moving into the region even under a closed arbitrage on paper.

The US exported 238.5mn bl, or 19.18mn t, of propane during the first nine months of 2017, according to the US Energy Information Administration. Of this total, about 192.9mn bl was shipped to destinations in Asia, according to that data.

Looking ahead into the first half of 2018, Asia will remain the favored destination for US cargoes, despite brief periods where netbacks into Europe are more favorable given wintertime heating demand. Propane prices are too high to make it the favored crack in ethylene production in Asia, but seasonally this will shift back once wintertime heating demand subsides.