Asia LPG market near contango on weak pre-summer N Asia demand, ample supply

Singapore — Softening North Asian heating demand ahead of summer and healthy supply to Asia from the US and Middle East in June have flattened the prompt month market structure and could soon move it into contango for the first time in seven months, trade sources said May 3.

June/July CP propane swaps structure was indicated at parity May 3, steady to the April 30 value, and narrowing from a $4/mt backwardation April 28, S&P Global Platts data showed.

The front month structure has been in backwardation since Oct. 8, after standing at parity Oct . 7 and at a contango of between $1 and $17/mt between Sep. 18 and Oct. 6, according to Platts data.

Front month March/April backwardation was as wide as $52/mt Feb. 15, amid a harsh winter that stoked heating demand in North Asia.

"I believe it could flip to contango soon," a trade source said, adding that while Chinese petrochemical demand is strong, retail requirements are weak.

US LPG shipments arriving in Asia next month are estimated at 1.8 million mt, up from around 1.2 million mt in May, traders said.

Gibson brokerage said in a report the US was set to load for all export destinations 87 VLGCs in April, a record high and a sharp rebound from 50 loadings in February. This was driven by the recent expansion of the Energy Transfer-Nederland terminal in the US Gulf, and a sharp recovery of VLGC exports from ET-Marcus Hook this month.

The previous record was 83 VLGCs loaded in October 2020, Gibson said in a report dated April 29.

US VLGC liftings hit a two-year low in February, when the southern winter storm disrupted loadings and shipping operations in the US Gulf. Activity resumed in March and April, with ET-Nederland set to lift 20 VLGCs in April, equaling a record set in January.

The terminal expanded its loading capacity end-2020, and since the start of this year has loaded 18-20 VLGCs/month -- excluding February -- from 10 VLGCs/month on average last year.

ET-Marcus Hook on the East coast will load 11 VLGCs in April, a record high since July 2019 and seven more than in the average of the four preceding months.

"I think it's possible (for a contango), as US exporting volume is quite big. Even if May cargoes are heading to Europe, the market might be in contango," a North Asian trader said.

But Grieg Shipbrokers said the US could grapple with uncertainties such as those seen this year when propane production was hit by cold weather with the shutdown of US Gulf refineries, and exports fell 3% due to Houston Ship Channel closures, along with periods of closed arbitrage.

As the US moves into summer months -- seasonally weak for domestic consumption -- the need for restocking ahead of the next winter is crucial to avoid supply shortage in case the deep freeze returns next year, it said.

However, this will be at least partly offset by firming export demand, as industrial demand for LPG recovers with the world emerging from the COVID-19 pandemic, Grieg said in a report dated April 30.

CFR NORTH ASIA PREMIUMS DIP

Weakening market sentiment is also reflected in falling CFR North Asia prices, with propane shedding $2.5/mt on the day to $528/mt April 30, hovering near $508/mt hit on April 20, which was a five-month low, Platts data showed.

Price differentials have also taken a downturn, with the premium of H2 May propane to May CP valued $2.5/mt lower on the day at $33/mt April 30. The premium was as wide as $48/mt April 19, Platts data showed.

Middle East supply is led by Qatar Petroleum, which has accepted the latest term cargo nominations for June without cuts, loading delays or advancement. QP has regularly offered or sold spot cargoes, the latest being a 45,000 mt propane parcel for end-May.

Kuwait has also been selling spot cargoes , while Saudi Arabia is expected to continue normal term acceptances after not cutting or delaying May-loading cargoes, as the kingdom restores crude production under OPEC+ commitment.

Cheaper LPG , with propane around $63/mt below MOPJ naphtha, has lent some support to demand in South Korea and Taiwan where petrochemical makers seek cheaper propane and butane. This gives some support to Korean imports which dropped 21% on-month to 6.376 million barrels in March, down for the third-straight month.