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India shifting to raise butane in LPG import mix due to costlier propane

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India shifting to raise butane in LPG import mix due to costlier propane

Singapore — India is expected to boost the ratio of butane in its LPG import mix to leverage the product's lower prices against propane and as more mid-sized gas carriers instead of very large gas carriers are used to avoid congestion at its ports, trade sources said Wednesday.

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The Indian LPG market infrastructure is traditionally designed to take in more butane, or about 60% of the LPG mix, and the rest propane.

But with butane being regularly more expensive than propane in recent years due to more propane supply in the region, Indian importers had gradually shifted to an evenly split ratio.

The price spread between the two LPG products flipped to make butane more costly in early January, after propane had been more expensive since October 11, S&P Global Platts data showed.

The premium of butane to propane on a CFR Japan basis had halved in H1 April and continued to shrink until end-April, as more US butane headed to Asia, according to S&P Global Platts data and market sources.

From early-May, butane became cheaper than propane where the discount widened to $22/mt around mid-May, while the market was also saddled with more mixed cargoes from the Middle East, including Iran. On Tuesday, butane was $19/mt lower than propane, Platts data showed.

Demand from India, a major importer of butane, had also been met after stockpiling ahead of the country's general elections in April/May, pushing inventories to optimal levels and prompting state-run Indian Oil Co. to scrap optional cargoes from the US, slated for June arrival offered in tenders.

In contrast, propane was driven by Chinese demand following the return of Chinese propane dehydrogenation plants from maintenance, although China's butane imports between January and April 2019 fell 7% on year to 1.55 million mt, mainly on rising natural gas penetration in the residential sector, S&P Global Platts Analytics said.

India's pre-election purchases had also caused heavy congestion at its ports, especially for VLGCs -- 82,000 dwt vessels which normally carry 40,000-44,000 mt cargoes.

In recent months, such congestion prompted state-run importers to seek deferments of their term shipments from the Middle East.

An Indian state-run trading source said VLGCs can normally carry evenly split propane/butane cargoes.

To smooth cargo flows at the ports, importers are switching to using more MGCs, which are 20,000-38,000 dwt mt in size and can carry a 40:60 propane/butane cargo ratio, the source said.

The source said the combination of using smaller vessels and price advantage of butane contributed to the shift back to a 40:60 import ratio.

"To some extent we can take more butane-rich cargoes, but not too much. This will be on a case-by-case basis," he said

But another Indian trade source said if butane remained cheaper than propane, "You can expect India to take more butane and shift from the current 50:50 ratio to 40:60, or even 30:70 propane/butane ratio."

The first source said the pause in Indian imports over the past month -- one of several reasons for Asian LPG prices falling to the lowest level in 23 months last week -- is expected to last through the current sweltering summer heat when demand stays low. But demand and imports are expected to recover around August-September after the summer ends, he said.

State-run importers are also awaiting the new government's LPG policy before finalizing their import program to see if demand will pick up, he added.

--Ramthan Hussain,

--Edited by Nurul Darni,