China LPG Importers Hit As U.S., Iran Supplies Fall

Chinese importers of LPG have been hit with higher prices and narrower margins as an ongoing trade dispute and sanctions have forced them to axe supplies from two key exporters—the U.S. and Iran—writes S&P Global Platts. China’s propane dehydrogenation (PDH) plant operators, the main LPG importers, have sought alternative supply as they resell contracted volumes from the U.S., pushing up procurement costs even though the overall LPG market remains well supplied.

“We now can only look for non-U.S.-origin LPG cargos, including barrels from the Middle East, Africa, and Australia,” said an executive at a Chinese LPG import terminal in western China. In 2017, the U.S. was the second largest supplier to China with volumes totaling 3.5 million metric tons of propane and butane, accounting for 19% of the country’s total LPG imports, according to data from the General Administration of Customs.

The U.S. was the world’s largest LPG exporter in 2017, accounting for 32% of global exports, followed by the United Arab Emirates and Qatar at 11% each, Algeria at 9%, and Saudi Arabia at 8%, according to the Italian shipping brokerage Banchero Costa. The United Arab Emirates was China’s single largest supplier in 2017, providing 35% of total imports, customs data showed. China suspended publication of import and export data in April.

However, volumes from the United Arab Emirates mask LPG cargos from Iran, according to multiple S&P Global Platts industry sources, who said China has been the main buyer from Iran, adding that term contracts with Iranian companies were not reflected in public data.

Between March and August, seven very large gas carriers (VLGCs) shipped LPG from Iran to China, according to the consultancy. The three vessels tracked in August were the LPG Scorpio, Gas Jasmine, and Gas Jenny. Iranian volumes are likely to come under pressure as the Nov. 5 deadline for U.S. sanctions on Iran’s petroleum sector nears.

Saudi Aramco set its September contract price for propane at $600 a metric ton on a free onboard basis, up $20 from the previous month. The October propane contract price was set at $655 a metric ton, the highest since 2014, data showed. Aramco’s monthly prices for loadings from Saudi ports also establish prices for East-of-Suez LPG markets.

Refrigerated propane spot cargos on a delivered basis to east China were estimated to average $651 a metric ton in September, up $55, or 9.2%, from August, Platts calculations showed. Higher import costs are mainly attributed to the escalation of the U.S.-China trade spat, market sources said. Chinese PDH plant processing margins in September are estimated to have retreated around 5.6% from August due to the higher cost of imports.

These plants typically secure half of their propane requirements under term contracts and the rest in the physical spot market.

Due to the trade dispute, non-U.S. LPG cargos carry a premium over U.S.-origin cargos, and executives at Chinese firms said swapping the cargos carried a premium of $5 to $10 a metric ton. Moreover, China stopped importing U.S. LPG in late August, and the last shipment was on the VLGC Ocean Orchid that arrived at Ningbo port on Aug. 11 and departed China on Aug. 24, according to S&P Global Platts. No U.S. LPG vessels arrived at Chinese terminals in September, down from two vessels in

August and four in July. China’s state-run Wanhua Chemical is in talks with suppliers for a term contract of African LPG cargos, said a company executive. “We are still talking. The CFR [cost and freight] price of African barrels is currently similar to that of Middle East cargos, which is not very attractive.” He also said the quality of African barrels is not as good as the Middle East. Wanhua Chemical operates a 750,000-metric-ton/year PDH plant and a propylene oxide-methyl tertiary butyl either facility in Yantai in eastern Shandong Province. The PDH plant can process 900,000 metric tons a year of propane, while the POMTBE plant can process 600,000 metric tons a year of butane.

(SOURCE: The Weekly Propane Newsletter, Nov. 5, 2018)
Higher tariffs forced Chinese firms to resell their U.S. propane cargos at discounts. Since the beginning of October, Oriental Energy has been offering more propane cargos in the Singapore physical market totaling 69,000 metric tons daily for November deliveries, according to market sources. The company, which runs two PDH plants in eastern China with a total capacity of about 1.5million metric tons a year, is the biggest importer of U.S. propane in the country. China imposed 25% retaliatory tariffs on $16 billion worth of U.S. products, including LPG, starting from Aug. 23 owing to its trade dispute with the U.S.