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Up to 11 Feb-loading US LPG cargoes to Asia canceled as arbitrage closes, fog disrupts ships

Highlights

US arrivals to Asia to fall to 1.6 million mt in March from 2.3 million mt for February

Lower US, Saudi volumes in Asia offset by softer heating demand as winter nears end

Plummeting VLGC rates could help limit narrowing arbitrage economics

Singapore — Around 10 to 11 LPG cargoes loading in February from the US to Asia have been canceled as the arbitrage narrows due to a two-week retreat in Asian prices and disruptions caused by closures of the Houston Ship Channel since Jan. 20, trade and shipping sources said.

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The cancellations will reduce US cargo arrivals to Asia to 1.6 million mt in March from 2.3 million mt in February, market sources with close knowledge of the matter told S&P Global Platts.

Lower US volumes, along with Saudi Aramco's cancellations of February-loading cargoes to up to eight lifters following Saudi Arabia's decision at the Jan. 5 OPEC+ meeting to cut oil production by 1 million b/d in both February and March, will constrict supply in Asia in March, the sources said.

The market impact is expected to be moderated by lower demand for heating as North Asia emerges from a harsh winter, though Chinese PDH demand will remain supported by high operating rates, traders said.

South Korea, for one, is expected to put the brakes on heating fuel imports in the late first quarter. The country is estimated to have imported close to 10 million barrels of LPG in January, compared with average 8.47 million barrels/month received in Q4 2020. LPG shipments could slip to around 9.5 million barrels in February and extend decline to around 8.5 million barrels in March, according to sales managers at major South Korean LPG distributors, including E1 Corp., surveyed by Platts.

The conclusion of winter heating demand pushed CFR North Asia propane prices to $569/mt Feb. 1, the lowest since Feb. 17 last year, after hitting near seven-year highs at $687/mt two weeks earlier on Jan. 18, S&P Global Platts data showed.

Though CFR North Asia propane prices recovered to $575/mt Feb. 2, they lagged the increase in Brent crude futures, reflecting softer market sentiment.

FOG, WINTER STORMS

Shipping brokerage Gibson said in a Jan. 28 report that fog in the US Gulf coast disrupted US Gulf exports over Jan. 20-25 when the Houston Ship Channel was closed, or only open one way, for five days in aggregate.

The Sabine Pass, which links Port Arthur to the US Gulf Coast, was also closed over Jan. 20-25, limiting exports from the Energy Transfer-Nederland terminal.

"Fog ex-US end-January and February is nothing new, but I think the cancellations ex-US in February is not so much because of the fog, but because of the netbacks being not workable, and the risk for lifting with SB Panama delay, on top of the possible closing of the Houston Ship Channel because of fog, is just another factor of cancellations," a shipping source said, adding that the cancellations involved trading firms.

Total US propane exports fell 219,000 b/d to 1.26 million b/d in the week ended Jan. 22, with 13 VLGCs loading from US ports, seven fewer than the previous week, Platts Analytics data showed.

VLGCs loading in the week ending Jan. 29 was down to seven, Platts Analytics data showed.

The shipping source added there has not yet seen any FOB sale by suppliers ex-US Gulf in February. A US-based source concurred, describing the market as "very slim".

The second source placed the propane cargo premium at 2.50-3.50 cents/gal over cavern product. But in the absence of actual sales, this is only a talking level heard, he said.

"I think arbs are the main thing," the source said, referring to the cancellations. "Backwardation in out-months doesn't help; freight on the other hand has dropped incredibly in the last month, so that does help." Increasing natural gas demand due to winter storms in the North East also supported prices.

Platts assessed Houston to Japan VLGC rates at $173/mt Jan. 12 before falling to $94/mt Feb. 2. After hitting almost seven-month highs at $119/mt Jan. 12, Persian Gulf to Japan rates plunged to $47/mt Feb. 3, the lowest since July 23, 2020.

The first assessment of February propane fell 4.875 cents from the final assessment of January to 85.25 cents per gallon; January barrels climbed as high as 94.75 cents per gallon Jan. 14.

The M1/M2 backwardation narrowed to 75 points. It was 11.75 cents on Jan. 28.