LPG Cancelations Could Reach 10 Cargos in March

About seven to 10 LPG cargos loading in March 2018 from the U.S. bound for Asia could be canceled as the arbitrage is crunched by persistent soft Asian prices, traders tell S&P Global Platts. This is more than the three to five cargos canceled in the February loading program. Some traders estimated March 2018 shipments to total about 1.4 to 1.5 million metric tons, while others said it could be even lower than 1.4 million metric tons. This is down from around 1.6 million metric tons estimated for February loading.

In canceling a term cargo, a company chooses to pay a cancelation fee rather than lift the product and sell it in a weak market. That fee can be as much as 75% of the cost of lifting. Assuming lifting fees are 12 cents/gal., as some sources have estimated, a cancelation fee would be about 8 cents/gal., meaning a company with a similar contract might opt to cancel if spot terminal fees fall below 4 cents/gal.

The trading company Vitol (Geneva) was reported to have canceled three or four cargos for early March 2018 loading from Enterprise Products Partners, sources told Platts.

A fifth Vitol loading was also said to be canceled for later in the month, although other sources said the cargo would be lifted. A Vitol trader did not respond to a request for comment.

ExxonMobil was heard to have canceled a cargo for a March 13-14 loading from Enterprise, but this could not be directly confirmed by Platts. Traders said France’s EDF Trading is canceling one cargo for loading March 29-30. An EDF representative did not respond to a request for comment. Shipping sources said Phillips 66 (Houston) might have also canceled one cargo from Freeport, though the date in March could not be confirmed.

“So, with all these cancelations, perhaps [the March program] could be even less than 1.4 million metric tons,” one source said. Another trade source said the number of cancelations seemed too high, “but they need to cancel as the FEI is too low.” The Argus Far East Index, or FEI, which denotes cost and freight (CFR) Asia prices, has been hovering at more than five-month lows for the past month. S&P Global Platts assessed the CFR Japan front month propane price March 2 at $478.50 a metric ton (MT). It had fallen to $467/MT on Feb. 8—the lowest since Aug. 23 at $455/MT after matching four-year highs of $610/MT on Dec. 27 last year. CFR Japan prices for February 2018 averaged $501.57/MT, slightly below the $504.42/MT for February 2017, Platts data show.

Meager arbitrage economics last year saw regular cancelations of U.S. shipments, limiting monthly loadings to around 1.1 million metric tons, or about 25 cargos. About 10 cargos were canceled each month during the second and third quarters last year due to poor netbacks as Mont Belvieu propane maintained unseasonable strength amid low stocks, Platts data showed. The cancelations started easing last December. The weaker prompt market in Asia has also narrowed the backwardation for the Saudi Aramco Contract Price. Trade sources said the lower U.S. shipments, which are due to arrive in Asia around April, could lend some support to a flagging regional market.

(SOURCE: The Weekly Propane Newsletter, March 19, 2018 ed. The Weekly Propane Newsletter is the propane industry’s trusted source for all the latest posted and spot prices from every major terminal and refinery around the U.S. Propane professionals benefit from a center spread of posted prices, which includes hundreds of postings completely updated and delivered to inboxes twice weekly. For market analysis, insighful commentary, and global reporting not found elsewhere, The Weekly Propane Newsletter is sought out by propane industry insiders. One single pricing update could be all it takes to increase profit. The Weekly Propane Newsletter also provides reputable, third-party pricing verification for index-pricing clients. Available by subscription at BPNews.com.)