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Natural Gas | Oil | Petrochemicals

Analysis: China's Jan-Aug imports of US LPG exceed pre-trade tension volumes

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Analysis: China's Jan-Aug imports of US LPG exceed pre-trade tension volumes

Highlights

Existing term import contracts extended, new ones concluded

Focus on flexible spot purchases as trade tensions persist

New petrochemical plants require steady stream of cheaper LPG feedstock

Singapore — China's imports of US LPG over January-August surpassed the volumes recorded before trade tensions halted flows in August 2018 with the imposition of prohibitive tariffs, as term contracts are extended and new ones sealed, along with monthly spot purchases.

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Chinese importers are being lured by the lower prices of US LPG cargoes, particularly propane, compared with Middle Eastern cargoes, which largely comprise a mix of propane and butane, and are also attractive to buyers in India and Indonesia that use them for cooking, trade sources said.

Imports of US LPG resumed early March when China began accepting applications for tariff exemptions on 696 US-origin goods, including crude, LNG and refined products such as LPG, enabling it to meet its purchase targets under the US-China Phase One trade deal.

Incremental demand for propane feedstock is needed for several new propane dehydrogenation plants and mixed-feed crackers due on stream by year end or early next year, after some delays, trade sources said.

The startup of several new PDH plants in recent months has boosted China's overall LPG imports to 1.92 million mt in August, up almost 25% from July and up 15.4% year on year, customs data showed.

Sources said these new plants made it imperative that Chinese petrochemical makers lock in ample and reasonably priced propane feedstock via a smooth application process.

"Applying for the permits is a simple process and applicants are getting permission to import -- imports have returned to pre-trade war levels," a Chinese trade source said, adding: "It's more than pre-trade war, I think."

China imported about 485,406 mt of LPG from the US in August, up 3.5% month on month, General Administration of Customs data showed, which saw the US eclipse the UAE to become the top LPG supplier to China.

The January-August import volume from the US at 2.412 million mt was up sharply from 2,443 mt in the same period a year earlier. Notably, it also exceeded the volumes seen in the same eight-month period of 2016, 2017 and 2018, when imports from the US totaled 2.405 million mt, 2.187 million mt and 1.621 million mt respectively, historical customs data showed.

MIXED VIEWS ON NEW TENSIONS

The opinions of Chinese trade sources were mixed about the impact the Trump administration's new licensing restrictions on US firms exporting products to China's top semiconductor manufacturer Semiconductor Manufacturing International Corp. would have on wider trade relations, and whether they could spark a recurrence of retaliatory measures that suffocate oil and gas trade.

"Many US LPG buyers are still not optimistic about the relationship between China and the US, so they mainly bought spot cargoes instead of signing term contracts with US suppliers, though the price of US barrels is currently lower than that of the Middle East grades," another market source in East China said.

"Spot cargoes are very flexible, it only takes around one month to deliver to China from the US," the source added.

Another source said: "If tariffs are brought back, we will have to stop importing US LPG."

Other trade sources were more sanguine, saying there has not been any discussion, or anxiety, over renewed trade tensions, adding new contracts limited to one year and on a delivered ex- ships basis have been signed in the third and fourth quarters, while existing ones have been extended. These contracts were signed on a Saudi Contract Price basis and some based on the Argus Far East Index, sources said.

China currently has 11 PDH plants in operation with combined propylene production capacity of 6.71 million mt/year and can use up to 8.05 million mt/year of propane as feedstock at full capacity, according to S&P Global Platts calculations.

After the lull earlier this year due to measures taken to contain the spread of COVID-19, Chinese buyers have also been busy buying spot cargoes as new PDH plants come on stream. Oriental Energy will start up its facility in Ningbo in November after multiple delays, sources said. Others said the plant, which has the capacity to produce 660,000 mt/year of propylene, could only start around January.

Yantai Wanhua Chemical, which has delayed the startup of its new LPG cracker and downstream chemical units in eastern Shandong province to early November from end October, will however start test runs around end October, a source said.

Shaanxi Yanchang Petroleum (Group) Co., Ltd., and China Gas Holdings Co., Ltd. have started construction of a joint venture PDH plant with a propylene production capacity of 600,000 mt/year in the Taixing Economic Development Zone on China's eastern-central coastal Jiangsu province, said the companies and sources familiar with the project.

The Yanchang Chimbusco Taixing Light Hydrocarbon Deep Processing Project will use 720,000 mt of propane as feedstock and will be constructed in two phases, taking two years to complete, sources said, adding propane for the project will be fully sourced from international markets starting next year.

Term supply contracts with Chinese importers:

(Unit: mt)

Supplier
Buyer
Size/Cargo (Propane or propane/butane)
no. of cargoes/year
From
Bayegan
Bohai
44,000/0
8
Jan-20
Glencore
Bohai
44000/0
12
Jan-20
Vilma
China Gas
22,000/22,000
9
Jan-20
Shell
Haiyue
23,000/0
12
Jan-20
E1
Haiyue
23,000/0
12
Jan-20
Bayegan
Satellite Petrochemical
23,000/0
4
Jan-20
Vilma
Satellite Petrochemical
23,000/0
12
Jan-20
Gyxis
Satellite Petrochemical
23,000/0
4
Jan-20
Shell
Siam Gas
22,000/22,000
12
Jan-20
Astomos
China Gas
33,000/11,000
12
Jul-20
PetroChina
Juzhengyuan
23,000/0
3
Jul-20
Vilma
SP Chemical
46,000/0
6
Jul-20
Astomos
China Gas
33,000/11,000
12
Oct-19
Bayegan
Haiyue
23,000/0
6
Oct-20
SK Gas
Bohai
44,000/0
1
Sep-20
Total
Bohai
44,000/0
1
Sep-20
Petredec
Bohai
44,000/0
1
Sep-20

Source: Chinese trade sources