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Feature: US propane exports renew pace, led by Japan's draw

The US Gulf Coast propane cargo premium reached its highest level since July as traders look to tap into a freight glut and ship end-of-winter barrels overseas, mostly to Japan at a record-smashing pace.

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S&P Global Platts has assessed FOB USGC 7 cents/gal over Mt. Belvieu propane since Monday, the highest mark since a 7.25-cent premium on July 18, 2018.

It is one of the highest premiums since active spot VLGC markets developed over three years ago, and also a seasonal trait as domestic demand fades and vessels compete for loadings. Platts assessed freight rates from Houston to Chiba, Japan, at $59.50/mt Wednesday, up from $57/mt where the

"H/C" rate had been hovering around lows unseen seen the same period last year. Northwest Europe freight was unchanged at $27.50/mt.

"H/C, we are seeing at the very high 50s," one LPG shipbroker said.

"There were nine fixtures last week with freight basis H/C of 44,000 mt, all of them out of the USGC."

US Energy Information Administration weekly data released Wednesday showed exports rose 23.5% week on week to 1.039 million b/d, and were also 28.4% higher than last year. Product supplied, also known as implied demand, dropped 20.1%, or 327,000 b/d, to 1.3 million b/d, and was down 16.1% from year-ago levels as domestic demand wanes.

JAPAN LEADS THE WAY

EIA released more accurate monthly data last week that showed propane exports reached a record 1.103 million b/d in December 2018, or 34.2 million barrels for the latest reporting month.

Japan alone accounted for a record 15.7 million barrels in December 2018, which along with its 13.9 million-barrel November haul are the only times the Asian country has imported more than 10 million barrels of US propane. Japan's draw has increased greatly since Chinese imports faded on rocky US-China trade relations.

"Japan's Q1 2019 imports should see even more US barrels compared to last year's data because the tariffs [for importing US LPG into China] started in May last year," a Singapore-based trader said.

Japan regularly imports LPG from Houston, receiving 13 cargoes in January and 17 in February, with eight slated for March arrival, Platts trade flow software cFlow data showed. Fewer cargoes were slated to arrive in Asia for H2 March and H1 April due to berthing delays in Houston.

Japan also received two cargoes from Port Arthur in January, three in February, and has one slated to arrive in early April. From Freeport in Texas, Japan saw the arrival of two cargoes in January, three in February and two more slated so far for March.

In 2018, Japan's imports of US LPG accounted for 64.6% of its total LPG imports of 10.675 million mt, up from 56.3% in 2017, according to the Japan LP Gas Association data.

Five years earlier in 2013, US LPG had accounted for just 8.2% of Japan's total imports of 11.574 million mt, JLPGA data showed.

EXPORTS REGAIN STRENGTH

For entire 2018, US propane exports totaled 354.7 million barrels, compared with 333.5 million in 2017 and 292.5 million barrels in 2016.

The monthly EIA data showed Japan took in the most US LPGs in December 2018 at 541,000 b/d, followed by Mexico at 136,000 b/d, Canada at 117,000 b/d, and South Korea at 99,000 b/d, India at 77,000 b/d, Dominican Republic at 60,000 b/d and China at 55,000 b/d.

India's pull was exclusively ethane, although there has been source talk of up to three propane/butane cargoes headed from the US to India for the first time ever.

Propane remained the top LPG export, with Japan's record total at 507,000 b/d followed by Mexico at 128,000 b/d, South Korea at 85,000 b/d and Dominican Republic and China at 55,000 b/d. Canada had only 4,000 b/d imports of US propane, as the bulk of its draw was natural gasoline for use as diluent to move Canadian crude back south.

A second US ship broker said LPG demand was strong from West Africa and Marcus Hook in the US East Coast. But he said the US was seeing renewed demand as Houston suffers fewer shipping delays from fog issues.

"With the fog lifting in the Houston Ship Channel, the vessels finally had to move," he said. "So it's fair to say the trend will be normalized around what you have in your records for number of liftings now."

Platts cFlow showed Wednesday that 35 LPG vessels had departed loaded from Texas in February and remained on the water, which is above average. At least half were headed to Asia, and nearly all were full-sized VLGCs of at least 40 mt. An equal number of ships were en route to load in Texas and 34 ships were currently being loading or waiting to be loaded, which may be near maximum capacity for the region.

"There's certainly hefty activity yesterday and today," the second shipbroker said.

--Matthew Kohlman, matthew.kohlman@spglobal.com
--Wanda Wang, wanda.wang@spglobal.com
--Edited by Pankti Mehta, pankti.mehta@spglobal.com