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Middle East LPG market under strain as supply improves, demand eases

Singapore — The FOB Middle East LPG market has come under pressure by abundant supply to meet demand from China and Indonesia, even as imports from India have yet to recover after the country's pre-election stockpiling, traders said Thursday.

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Qatar and Saudi Aramco have cargoes to sell while Kuwait Petroleum Corp., or KPC, recently sold at discounts, traders said. China's appetite for FOB Middle East tonnes to avoid US imports amid the US-China trade tension, were also being met by Iranian shipments, they added.

The scheduled start of LPG marketing in April from China's greenfield Hengli Refining and Chemical Co. plant, has also triggered disruptions to the domestic market and prices which could impact imports, trade sources said.

"We have seen two producers' spot tonnes which total 90,000 mt and Middle East monthly export volume of around 3.1-3.3 million mt," one source said.

KPC has sold a spot FOB cargo comprising 11,000 mt propane and 33,000 mt butane for June 29-30 loading at a discount to the Saudi Contract Prices.

Last week, KPC sold a 44,000 mt evenly split cargo for June 4-5 loading to an Asian trader at a low single-digit discount to June CPs, a source said.

It was not immediately clear whether or not Qatar Petroleum for the Sale of Petroleum Products, QPSPP, has awarded its tender offering 33,750 mt of propane and 11,250 mt of butane for June 26-28 loading.

Some traders said the tender was not awarded and that QP offered a spot cargo last evening with any propane/butane ratio, or a full propane cargo. QP declined to comment on the tender when contacted.

Saudi Aramco was also heard offering a spot 44,000 mt evenly split cargo for June loading.

These spot FOB cargo offers have become increasingly rare over the past year, as Middle Eastern producers were focused on fulfilling growing term commitments, including new contracts with Chinese buyers seeking to secure Middle East supply as they halted US imports, while crude oil production cuts had also lowered associated gas output.

NARROWING BACKWARDATION, TIPPING TO CONTANGO

Just over two months ago, the backwardation on the Saudi propane CP front-month timespread hit a near two-year high of $45/mt on a supply crunch in the Asian LPG market.

That tightness was also due to a rush in demand from India for pre-elections stockpiling, which caused abundant supply as polls got underway and ports became congested, trade sources said. This led to Indian buyers seeking deferments in term deliveries and a slowdown in further purchases until the backlog cleared, dampening demand for butane.

The market, which had been tightened by berthing delays since February in the US Gulf that was also congested by water contamination, had seen volumes flowing again in May, improving supply in Asia amid an open arbitrage.

In effect, before the release of the Saudi June CPs on Tuesday, the front month June/July timespread was in a $16/mt backwardation on May 24 and was as narrow as $8/mt on May 23. The July/August timespread, which will take over as the front-month Friday, was in a contango of $1/mt on Wednesday, narrowing from a $2.5/mt contango the day before.

Trade sources said Chinese buyers' bidding levels for H1 July delivery cargoes are around June CP plus $30s-$40s/mt, which suggests that FOB levels are at discounts when freight is deducted from CFR cost.

A resurgence in Iranian shipments in the first and second quarters, after a near halt in November and a slowdown in December following the re-imposition of US sanctions on November 4, was also meeting Chinese demand and limiting import costs versus the high premiums paid for FOB cargoes from other producers.

Around nine mixed propane/butane cargoes totaling 396,000 mt, were lifted in May, sources said. Shipments reached a peak in April, when 12 mixed cargoes totaling 528,000 mt were shipped, while March liftings totaled 440,000 mt, in 10 mixed cargoes, sources said.

February loadings totaled 266,000 mt, while 336,000 mt were shipped in January. Trade sources expect June loadings to also exceed 400,000 mt.

One drawback is that most Chinese PDH operators use propane as feedstock, leading to excess butane in the market and contributing to a widening premium of propane versus butane.

With India not taking butane tonnes, it was left to Indonesia to absorb excess butane at levels deemed aggressive relative to previous purchases, traders said.

In recent tenders, Indonesia's state-run Pertamina bought two 44,000 mt evenly split cargoes for July 5-6 delivery at low double-digit discounts to Saudi July CPs, FOB, equivalent to a low double-digit premium to the July CPs, CFR basis.

Before that, Pertamina bought a 44,000 mt evenly split cargo for early-June loading, FOB Middle East, at a double-digit discount to June CPs, and two 44,000 mt evenly split cargoes for June 15-17 delivery CFR, at a small premium to the June CPs, a trade source said.

Pertamina earlier bought two 44,000 mt evenly split LPG cargoes for June 2 delivery, CFR, at a low double-digit premium to Saudi May CPs, and FOB Middle East loading over May 15-20 at a low single-digit premium to the Saudi May CPs.

--Ramthan Hussain, mohd.ramthan.hussain@spglobal.com

--Edited by Nurul Darni, nurul.indriani.darni@spglobal.com