Asian LPG demand remains robust with market participants mostly surprised about the firm regional take-up. This is despite record exports from the US in March, and likely May, coupled with an unusually large export programme from Saudi Arabia this month.
Saudi Arabia's state-controlled Aramco Trading (ATC) chartering of 15 very large gas carriers (VLGCs) to load cargoes in May for spot sales had initially rattled traders, who were concerned about high exports from the US during a seasonally weak demand period. Spot sales from ATC had averaged 7-9 VLGCs each month since June 2022, so an exceptional chartering programme in May that consequently pushed up freight rates on the Ras Tanura-Chiba, Japan route, likely boosted supplies during the northern hemisphere summer flat period. Front-month Argus Far East Index (AFEI) propane swaps averaged a $90/t discount to its naphtha equivalent in April compared with a February average of -$9/t at the tail end of winter.
The spot offerings by ATC were well received by consumers in southeast Asia and China, eager to build stocks after prices had corrected around 40pc from January's high. Higher exports in May from Saudi Arabia were attributed to lower domestic petrochemical consumption because of pipeline maintenance, market participants said.
While exports from the US are projected at around 5mn t in May, arbitrage inflows to Asia in June were expected to account for more than half. Supplies from Iran have been stable, where 2.9mn t of outflows were recorded by Vortexa during January-April, up from 2.5mn t exported during the same period last year.
Petchem drivers
But buyers in south China expressed concerns about limited offers of June supplies despite hefty exports from the Mideast Gulf. New petrochemical start-ups in south China's Guangxi, Guangdong and Hainan provinces have stepped up purchases of propane feedstock.
Oriental Energy's fourth propane dehydrogenation (PDH) unit in Maoming and Grand Resources' second PDH unit in Dongguan, both of 600,000 t/yr capacity, are expected to be operational by the end of June. Sinopec Hainan's new 1mn t/yr cracker earlier bought two 46,000t cargoes for June delivery through tenders. In the wake of the supply tightness, Iran-origin cargoes were sold at a $10/t discount to near parity to standard-origin cargoes from the Mideast Gulf, paring the typical $30/t discount between the two regions, market participants said.
With June AFEI propane swaps hovering at an $80/t discount to naphtha, South Korean cracker operators are likely to switch to the more competitive feedstock as they return from a heavy maintenance schedule in April and May. Hanwha Total bought 23,000t of butane for 21-27 June delivery to Daesan at a $70/t discount to June naphtha, while Taiwan's Formosa Plastic paid $58/t below June naphtha for a 33,000t propane and 11,000t butane cargo meant for 1-15 June delivery.
Chinese PDH plants, which are the main engine of LPG demand growth in the country, have raised operating rates to 74pc for the week ending 10 May, up from 66pc a month earlier, after production margins stayed in positive territory for the eighth consecutive week because of more rapid upstream losses. The latest sale of a 46,000t propane cargo to east China for second-half June arrival was done around a $8-9/t premium to the June AFEI, up from $2-3/t a week ago.
