Chinese LNG buyers spark surge in deal-making as JKM prices soften

Chinese LNG buyers have engaged in a flurry of purchasing following the sharp decline in Asia-Pacific spot prices, with some 10 cargoes changing hands in the week ending Feb. 23, market sources said.

After a week of continuous declines, Asian LNG prices dipped below the $8/MMBtu mark on Feb. 23. Platts, part of S&P Global Commodity Insights, assessed the April JKM at $7.981/MMBtu on Feb. 26, down by 6% week on week and 12.6% lower month on month.

According to multiple sources, the cargoes that traded in China are scheduled for delivery from second half of March to mid-May, with the buyers mainly second-tier players in China. There were also a few tenders awarded to Chinese national oil companies during the week.

The active trades seen in China were partially due to the need to rebuild inventory after the Lunar New Year holiday as smaller players may have low inventory levels, though low prices would be the main factor attracting importers to make purchases as some had started buying even during the holiday, sources said.

"For the week ending Feb.16 when most Chinese players were on holiday, there could be 6-8 cargoes for March and April shipments traded during the last half of the week as prices dipped below $9/MMBtu," a Chinese trader said.

"We made purchases primarily due to lower prices instead of strong demand incremental expectation, however, industrial demand for LNG could be better when factories start production at full capacity during March" a Chinese buyer said.

"The purchases were mainly driven by lower prices rather than expectations of strong incremental demand," said a Chinese buyer, who added that industrial demand for LNG could improve gradually as factories ramp up production to full capacity in March.

According to market sources' estimates, volumes of LNG arriving in March and April could be 150% higher year on year.

Spare LNG terminal slots

Recent active purchases by Chinese second-tier buyers were also attributed by multiple sources to buyers needing to utilize spare slots released by state-owned PipeChina for third-party access at its seven LNG receiving terminals, with more slots released last November for April 2024 to March 2025.

"There were unused spare slots accumulated since 2022 and 2023, with some buyers postponing usage to this year, subsequently driving up LNG demand for spot cargoes recently;" a Chinese trader said.

"However, cheaper prices remain the predominant factor in purchasing strategies currently, as importers may persist in postponing utilization of terminal slots if the import margin in China is insufficient," said another Chinese second-tier buyer.

Second-quarter purchases expected to remain active

Multiple Chinese players said that buyers are expected to be price-sensitive during the second quarter as they are actively monitoring price differences between long-term contract (LTC) prices and JKM prices, as well as the price arbitrage between domestic trucked LNG prices and JKM prices.

"Import margin derived from the difference between domestic trucked LNG prices and JKM prices dictates the buying activities of second-tier buyers in China," an analyst from a Chinese major said. "With the possibility that the softening trend of JKM prices persists as the market enters into shoulder months, it is likely that buyers would be more interested to purchase from the spot market."

China's trucked LNG price was at Yuan 4,118/mt ($11.00/MMBtu) on Feb. 26, according to the Shanghai Petroleum and Natural Gas Exchange.

"Many buyers still have uncovered demands for April shipments and onwards, cautious of price downside risks, so they will closely monitor prices and make purchases when margins are favorable," said another China-based trader, adding that the purchasing activities of second-tier buyers could be influenced by the selling actions of Chinese national oil companies, which could affect domestic trucked LNG prices.

Additionally, another Asian trader also suggested that there would be motivation for Chinese buyers to purchase more from the spot market as most Brent-linked LTC prices seem to be higher than current spot prices.

"The Brent-linked LTC prices are above $10/MMBtu, which is apparently higher than current JKM prices, hence, it is expected that there is some support in the spot market for upcoming shipments," another trader said.