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Uncertainty over pre-winter stocks, exports, demand drives US, Asia LPG to multi-year highs

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Uncertainty over pre-winter stocks, exports, demand drives US, Asia LPG to multi-year highs

Highlights

US October-loading LPG cargoes for Asia estimated at 2.9 million-3 million mt

Concerns over Panama Canal transit delays

Asia demand for heating, PDH operations picking up

Asia and US LPG prices are rallying to multi-year highs on concerns and uncertainty over demand, inventory and exports, as the market struggles to come to grips on how severe the looming winter will be, traders in Asia and the US said.

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Asia-bound US LPG cargoes loading in October are estimated at least around 2.9 million mt, steady against September loadings and less than 3.3 million mt in August, an Asia-based source said.

A shipping source estimated October-loading cargoes destined for Asia to exceed 3 million mt and the volumes are expected to increase further. He said shipments are being restricted by lingering transit delays via the Panama Canal, adding that the waiting time for south-bound transits is currently five days.

"The very end-October loaders might be in jeopardy if the south-bound canal congestions increase again," the second source said. "So, earlier October cargoes that can for sure meet November arrival, will go East and be replaced with later October loaders potentially for other destinations."

A source in the US, however, said Panama Canal delays have now reduced to three days north and four days south.

Uncertainty over US shipments due to the transit delays and concerns over LPG stocks below the five-year range ahead of the northern hemisphere winter, come as Asia's heating demand is picking up, traders said.

Chinese propane dehydrogenation plants are also returning from maintenance amid healthy margins.

The US source also pointed to erratic LPG prices as a concern.

S&P Global Platts assessed non-LST propane at $1.5075/gal for a second consecutive day-on-day decline, the first since Sept. 20-21. Spot propane was at $1.5175/gal Oct. 4, the highest level since Feb. 19, 2014. Non-LST normal butane reached a more than eight-year high of $1.62375/gal Oct. 5, before Platts assessed it at $1.6075/gal Oct. 6.

"The US-East arbitrage [is] open, but massive daily price fluctuations have pushed some to the sidelines," the US-based source said.

Even as regional end-users hope for healthy volumes of US arrivals inNovember, CFR North Asia propane prices have been on a sharp uptrend since Sept. 9 to $910/mt Oct. 6, the highest since July 2, 2014, when it touched $918/mt, Platts data showed.

While the strength in Asia is expected to keep the US-East arbitrage open, the rally has also helped to pull up prices in the US, traders said.

Debate over winter demand

But US trade sources were not in consensus on whether domestic winter demand is impacting US flows to Asia. Part of the issue of projecting what will happen this winter is the overall market uncertainty. "That's the question domestically," the third source said.

"Crude and natural gas are jumping all over. Plus COVID-19, plus the economy, plus the weather. Very difficult [to project]."

Another US source said traders expect the anticipated propane inventory shortage to further complicate market sentiment

US Energy Information Administration data released Oct. 6 showed total US propane stocks at 72.3 million barrels for the week ended Oct. 1, just 71% of stocks from the same week in 2020 and 75% from the same week in 2019. Exports posted a build of 328,000 b/d to 1.25 million b/d following three consecutive weekly draws.

Traders also attributed the sharp climb in LPG prices to the rally seen in crude futures, strong natural gas prices and the push in the Argus FEI swaps, which underpins the CFR North Asia market.

"Traders are anticipating that the US and Asia may experience a crunch, should winter be more harsh than usual, one Asian trader said. "So it's a perfect storm in terms of high consumption numbers for crude, low production of crude, and for LPG."

But traders also said while the flat-price FEI swaps have been strong, the physical spot bids, offers and trades have been done at discount levels for November-delivery cargoes.

"Buyers try to get a deal done at a level that they can stomach," another trader said.

Nervous market

The CFR price jump as well as Saudi Aramco setting the October propane Contract Price at $800/mt, up $135/mt versus September, and butane CP at $795/mt, up $130/mt from

September, for the fifth monthly increase and the highest since July 2014, have rattled end-users in India and Southeast Asia -- where governments shoulder heavy subsidies when

prices soar -- as well as in top consumer China.

"I only know that Asian [consumers] cannot afford such high flat prices, especially China," a North Asian trader said, adding that the rally comes even as "the physical market is quite long.

"If the US has no demand change, why would they hold such inventory which is more than enough for their use and production over there would go higher after all those hurricane

issues."

The US source said, so far there were no indications the northern hemisphere winter would be severe.

"Sentiment and the arbitrage would show domestic winter heating demand competing for cargoes," one shipping source said. "We expect short- to medium-term the Panama Canal congestion and LPG fees to increase the arbitrage."

The first US source said: "Every year the demand pie keeps shrinking, and even marginal barrels get exported. Yeah, inventories are low, but honestly the domestic market doesn't

need it. But sentiment is otherwise, so it's going to be a very interesting winter."