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China's LPG imports to rebound in Q4 after lull on COVID-19 measures

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China's LPG imports to rebound in Q4 after lull on COVID-19 measures

Highlights

Q4 imports forecast to rise 6.8% on the year to 5.7 million mt

Full-year imports to drop 1.2 million-1.3 million mt from 2019

Storage tanks down to 64% of capacity from 85% a few weeks back

Singapore — China's LPG imports for the fourth quarter of 2020 are forecast at 5.7 million mt, up around 6.8% year on year, supported by hopes of steady demand recovery as measures taken earlier in the year to contain the COVID-19 pandemic are gradually eased, trade sources said in the week ended Aug. 14.

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They estimated 2020 imports at 18.8 million mt, down around 1.2 million-1.3 million mt from 2019. Similarly, according to S&P Global Platts Analytics, full-year imports are estimated at 18.5 million-18.6 million mt, about 1.3 million mt lower from 2019.

Imports in Q3 were projected at 4.07 million mt, about 1 million mt below the year-ago period, trade sources said.

China's first-half of 2020 LPG imports were 9.2 million mt, down 655,458 mt, or 6.7%, from H1 2019 volumes, data from the country's General Administration of Customs showed.

Chinese LPG imports were disrupted in Q1 by lockdown measures to control the spread of COVID-19. The inflow recovered from late March, when regulations were eased, leading to brimming storage tanks at LPG terminals and a brief period of port congestion around June, which gradually eased.

"[The level in the storage tanks] has been coming down, as of Aug. 6 it was around 64%. It was as high as 85% a few weeks back," a source familiar with the matter said.

Mid-year LPG demand was kept steady by the start-up of two new propane dehydrogenation plants -- operated by Zhejiang Petrochemical and Zhejiang Huahong, in eastern Zhejiang province -- taking China's PDH plants to 11, with total propane feedstock consumption of up to 8.05 million mt/year and combined propylene production capacity of 6.71 million mt/year.

While the market frets that the COVID-19 pandemic might delay new startups, as the demand outlook for final products remain grim, Wanhua Chemical Group expects to launch its 1 million mt/year ethylene integration project in Yantai by end-August. This is the world's first ethylene cracker to run almost fully on LPG feedstock, estimated at 2.2 million mt/year of mixed cargoes comprising mainly propane with some butane and a small slice of ethane.

SPOT PURCHASES DULLED BY INCREASED TERM IMPORTS

Wanhua, which had said it was not seeking new spot cargoes for Q3, is currently reviewing offers into its import tender for 12 44,000 mt propane cargoes for January-December 2021 delivery, sources said.

Some trade sources said compared with past years, Chinese spot purchases remained downbeat, even as term purchase volumes by the likes of Ningbo Kingfa and Grand Resources were increased.

However, some sources cautioned about expecting too much for any significant rebound in Q4, as hopes that May imports of about 2 million mt would be repeated in subsequent months, were not seen over July and August.

The jump in May imports, sources said, were also supported by the plunge in April Saudi Aramco term Contact Prices, with propane set at $230/mt and butane at $240/mt -- the lowest since December 1999, in line with the plunge in crude oil futures, Platts data showed.

The demand recovery in May was also driven by the return of Chinese buyers to feed PDH plants that resumed operations after the COVID-19 shutdowns, which along with strong imports from India and Indonesia for April to June deliveries, had pushed the May propane CP to $340/mt, up $110/mt from April, and the butane CP also to $340/mt, up $100/mt month on month.

The jump in China's LPG imports in May were also propelled by higher inflows from the US, following approvals of import permits as trade tensions eased. Volumes in May were also helped by the launch of the LPG contract on the Dalian Commodity Exchange in March, with around 250,000 mt reported traded for CFR May delivery, trade sources said.