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Saudi Oct term propane CP expected above $400/mt as supply worries linger

Singapore — Saudi Aramco is expected to set the October propane term contract price at just above $400/mt, versus $350/mt for September, traders said Friday, as details emerged that some Indian companies had their October-loading term cargoes deferred in the recent acceptances of nominations.

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If the October CPs were to be set higher when they are announced at the end of this month, this would be the first increase after four-straight declines, reflecting a market that has regained a bullish sentiment.

Early on Friday, Saudi October CP propane swaps was indicated at $403/mt, up from $399/mt on Thursday's Asian close, according to brokers.

The October/November CP propane swaps spread was indicated at a $4/mt backwardation early Friday, versus a $2/mt backwardation the previous session, signaling a firming prompt market as regional demand is also showing improvement.

Uncertainties over supply after Saturday's attacks on key Saudi oil facilities had unnerved oil markets earlier this week, resulting in highly volatile LPG prices which jumped to 49-month highs on Tuesday.

Asian LPG prices then retreated to almost three-year lows a day after, as concerns eased on assurances from the Saudi energy minister that the kingdom expects to restore most of the crude production affected by the attacks within two weeks.

Traders also had said that Saudi Aramco announced acceptances of October-loading term LPG nominations with no cuts though some cargoes to North Asian lifters were delayed or brought forward to earlier dates.

Related factbox: Attacks on Saudi oil units affecting major Asian crude buyers differently

The market is now watching the impact of deferments of October-loading term cargoes slated for India's state-run companies which normally take their shipments aboard medium-sized gas carriers, or MGCs.

Some traders said another trading firm active in the Indian market might also be affected, as well as cargoes bound for Egypt, though this could not be immediately confirmed.

"There is still uncertainty," one trader said, when asked if the market has settled down after the uncertainties earlier in the week.

Another trading source said: "Now it seems certain that the picture is not so rosy. So, the October propane CP should be higher than $400/mt."

A source with an Indian state-run company said they had expected to receive their term cargoes in the first two weeks of October, but these have been deferred to the latter part of the month.

HEALTHY INDIAN DEMAND

"We are already seeing higher domestic demand and this deferment only widens the gap," the source said.

To cover for rising LPG demand especially during the October festive season, Bharat Petroleum Corp. Ltd. issued an import tender for 45,000 mt of evenly split LPG cargo for September 24-October delivery to Dahej, followed by Mangalore, both on the Indian west coast.

Another state-run firm, Indian Oil Corp. sought by tender 12,000 mt of butane and 8,000 mt of propane for October 1-10 Delivery, CFR Kandla, also on the west coast.

The trade source said Indian buyers are concerned over the current higher price of butane versus propane, which is currently around $11/mt, as India normally buys more butane for household use.

Another trader said it was surprising that despite the issues around Saudi deliveries, the premium of butane to propane has not widened further. He said this could be due to the fact that propane prices are also strong, "masking butane's strength, or maybe butane (price) may blow up later."

A North East Asian lifter who had received its cargo delayed till end-October for loading from Yanbu on the Red Sea coast, was also informed that its cargo would be on a minus tolerance volume terms, reflecting the state of Saudi supply.

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

--Edited by Kshitiz Goliya, kshitizgoliya@spglobal.com