Trade: Chinese Importers Taking Spot Cargos from Middle East
Major Chinese propane dehydrogenation (PDH) plant operator Oriental Energy in mid-August bought, via tender, 45,000 metric tonnes of propane from Qatar Petroleum for Sept. 1-7 loading, trade sources tell S&P Global Platts. The cargo was sold on a cfr (cost and freight) basis at a premium in the mid-$30s a metric tonne to the Saudi Aramco contract price, they said. On a fob (free onboard) basis, this equates to around minus $4-$5 a metric tonne to the Saudi contract price.
In May, Oriental Energy also purchased via tender a cargo comprising either 33,750 metric tonnes of propane and 11,250 metric tonnes of butane or 45,000 metric tonnes of propane from Qatar Petroleum for June 24-30 loading. China Gas, a Hong Kong-listed gas operator and service provider across China, in early August bought a tender cargo from Kuwait Petroleum Corp. of 33,000 metric tonnes of propane and 11,000 metric tonnes of butane for Sept. 5-6 loading. The cargo was sold at a discount of $5-$8 a metric tonne to the Saudi contract for propane and butane fob Mina al-Ahmadi, traders said.
China Gas, which plans to build a PDH plant, hopes to boost its LPG imports to around 10 million metric tonnes a year over the next five years from its current 2.8 million metric tonnes annually, and plans to seal fob term contracts with Middle East producers such as Qatar and Kuwait, industry sources said. Traders observe China is turning more to Middle East cargos to cover for any shortfall from the U.S. due to the higher import tariffs by China. S&P Global Platts observes that China’s robust demand is a relief to Middle East producers, who have faced stiff competition for the Chinese market over the past four years. China has seen rapid development of the PDH industry, and petrochemical players had preferred to forge long-term contracts for U.S. supply, which had been perceived at the outset as cheaper and more secure.
The three major Middle Eastern producers, Saudi Aramco, Qatar, and Abu Dhabi National Oil Co., have announced acceptances for September-lifting term nominations with no cuts or major delays. This is offering some consolation to a market grappling with Chinese demand for Middle East supply, and in turn seeking alternative outlets for U.S. cargos that are being reoffered and largely taken by buyers in northeast Asia and Indonesia.
Saudi Aramco is advancing loading dates in September for some lifters, one trader said. However, he added the market will remain tight. “AG [Middle East] tonnes cannot make up for the shortfall of U.S. propane.”
Other market sources said the China-U.S. trade row and the demand for Middle East cargos are lending support to Saudi contract prices. This would help narrow the spread between the Far East Index (FEI), which indicates cfr East Asia prices and the contract price, which indicates fob Middle East prices. Chinese importers are also the dominant buyers of LPG from Iran, which is facing renewed U.S. sanctions and is the recipient of a ready market from China, especially amid its trade spat with the U.S.
(SOURCE: The Weekly Propane Newsletter, August 27, 2018. Click above to subscribe.)
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