China's LPG imports slump as COVID-19 dampens household, petrochemical demand

Singapore — China's weekly LPG imports are estimated to have slumped drastically to around 250,000 mt in the first week of February on news of the deadly coronavirus and fell even further to 187,000 mt last week, domestic information provider JLC data showed.

The import average for the last two weeks of February were at 218,500 mt, much lower than the 340,000 mt seen in the year-ago weeks, S&P Global Platts calculations showed.

Trade sources attributed the lower imports in H1 February to poor domestic demand, raising concerns it could lead to a stock build and prompted major importers to re-offer, or seek deferral of cargo arrivals if the crisis lasted through April.

"I think the developments are still the same, that South China household sales are not picking up," a market source said. "But PDH plants (demand) is picking up."

A source at an LPG import terminal in Zhuhai, southern Guangdong province, said many factories and restaurants still remain shut or are running at slower pace.

LPG sales in first week of February were 10%-20% of normal levels and 30-40% in the second week, the source said.

Sales volumes at some southern China terminals were heard to have risen to around 50% their normal level last week, the source said, adding he hopes market demand will continue to climb toward end-month with more factories restarting.

Households and the commercial sector, which account for half of China's LPG demand, are facing transport and logistical gridlock due to the coronavirus outbreak.

PDH plants' low operating rates

China has nine PDH plants with 5.66 million mt/year of combined propylene production capacity that can process up to 6.79 million mt/year of propane at full capacity. The country also has five mixed alkane dehydrogenation plants, with estimated annual processing capacity of 2.85 million mt, adding up to around 9.6 million mt of potential propane and butane demand, which used to be mainly imported.

In the first two weeks of February, PDH plants' average operating rate is estimated at 74%, JLC data showed. Though above January's average operating rate of 63%, it was down from 85% in December and 91% in February 2019.

Four of nine PDH plants closed for maintenance last month on negative processing margins, while China's Q1 GDP growth projection has been revised down to 4%. The country has been recording growth of above 6% over the past five years.

Operating rates at mixed alkane dehydrogenation plants have been reduced to around 67% in January from 85% in December, JLC data show.

"Disruption in the LPG value chain and reduced industrial activity (is expected) to lower China's Q1 demand by roughly 1.02 million mt, with industrial demand accounting for roughly two-thirds of the drop," said Manish Sejwal, LPG markets adviser at S&P Global Platts Analytics.

PDH plants' theoretical processing margin was estimated at minus Yuan 275/mt ($39.8/mt) in January, lower than minus Yuan 47/mt in December, marking the fourth consecutive month of declines since October, according to Platts calculations.

The negative margins are due to costlier propane imports—when CFR North Asia LPG prices over end-December/early January hovered near 15-month highs—and lower domestic propylene prices, Platts data showed.

Brokerage Poten & Partners said China's LPG demand is expected to reach 62.5 million mt in 2020, down 2.1 million mt from its previous forecast. LPG imports this year are now forecast at 24.7 million mt, some 1.6 million mt below its previous forecast, provided the coronavirus impact is not extended, it said in a report.

But Sejwal said: "Reduced downstream derivative demand [is expected] to delay the start-up dates of new PDHs from Q2 to Q3 2020."