Southeast Asia LPG purchases restricted on expectations of lower Saudi CPs

Singapore — LPG buyers in Southeast Asia are bracing for lower Saudi Contract Prices in coming months, limiting purchases as end users seek to avoid paying more for prompt cargoes, trade sources said April 22.

This has led to rising stockpiles from excess domestic production and higher imports earlier, they said, while demand is also curbed by the COVID-19 pandemic in countries such as the Philippines.

With Saudi Aramco due to announce May term CPs by April 30, traders' initial expectations for propane ranged between $460/mt and $500/mt, and butane $20-$30/mt below that.

Saudi April propane CPs were set at $560/mt -- the first drop after nine-straight months of increases, while butane was at $530/mt, down after eight consecutive rises.

Saudi May CP propane swap was indicated April 22 at $475/mt, versus $474/mt valued previous session, while butane was indicated $22/mt below propane.

Another drop in term CPs, would come amid healthy supply from the Middle East. Saudi Arabia had accepted May-loading term cargo nominations in line with lifters' nominations, as the kingdom restores crude production to meet OPEC plus commitments.

While ADNOC's acceptances of May term nominations came with delays for some lifters and no cuts, sources said the delays were not significant.

Qatar, which announced acceptances for May with no cuts or delays, has been offering and selling spot cargoes, the latest being a tender offering 45,000 mt of propane for May 22-29 loading, due to be awarded April 22.

Refineries in Vietnam have recently offered pressurized LPG cargoes to international buyers via tenders to clear surplus amid tepid domestic take-up.

"Binh Son and Nghi Son refineries, as well as PV Gas, are trying hard to sell, but may receive no any buying offer. All (Vietnam) gas companies are facing losses because of (slow demand) due to the ever-falling CPs," one market source said, adding refiners use CPs as domestic price markers.

"Gas inventory is generally very high because retailers and distributors minimize taking gas volume from gas companies, as everyone in the market knows well that May CPs will be lower than April CPs."

If the CPs are to drop for two consecutive months, domestic gas producing companies "are going to suffer huge losses incurred from selling the unfinished gas inventory of the current month in the succeeding month," the source added.

Binh Son Refinery and Petrochemical last week issued a tender offering a 4,000 mt/month of LPG for May-December loading. Nghi Son Refinery also closed a tender April 15, offering a total 4,500-5,100 mt of mixed LPG, for late-April and early May deliveries. Results were not immediately known.

JG SUMMIT ENTRY

In the Philippines, COVID-19 is affecting LPG sale, while prospects of lower forward prices prompt suppliers to try to dispose of high stocks, a trade source said.

With the Petron refinery still shut, the country relies on imports.

"Market competition is intense and has been since second-half December, 2020," he said. "Prices of CFR Philippines (pressurized) cargoes are still seeing mid $70s/mt to CPs. Pretty stagnant, no demand over here and the domestic market is awash in tons. Just too much stuff being brought in."

He said the market was oversupplied even before JG Summit comes into the picture. JG Summit Petrochemicals is part of the JG Summit Holding Group.

"JG Summit will have the largest storage among all market players," the source said. "This will be their first foray in domestic LPG. Once they enter the market, it'll add even more downward pressure to prices."

The refrigerated storage tanks are expected to start operations in H2 2021, with holding capacity of 14,000 mt of propane and 18,000 mt of butane, the source added.

For a start, JG Summit were heard to be bringing in 22,000 mt evenly split cargoes in H2 2021, "probably one shipment every two months," he said.

Another industry source said while lockdowns impact sales into industries and restaurants, these were offset by sales to households, as stay-at-home restrictions were seen to have boosted residential consumption.

The source had initially projected 2021 to see 5-6% increase in LPG demand, the same year on year growth as in 2019 and 2018, "as we expect factories and restaurants to reopen fully especially when the COVID-19 vaccine becomes readily available."

But the Philippines is struggling with one of the worst COVID-19 outbreaks in Asia and faces a second wave of infections, with 945,745 COVID-19 cases reported since the pandemic started and about 16,000 deaths, while nearly 1.3 million people have so far received at least one vaccine dose, even as only 3 million doses were arriving out of the 140 million it aims to procure.

"In the Philippines, well, we have the world's longest quarantine and we went into a two-week lockdown, so consumption for commercial establishments has definitely been affected," said the first source.