Asia Butane Premium Over Propane Erodes on Expectations of Returning Mideast Supply
The premium for physical butane cargoes over propane in Asia has eroded following the U.S.-Iran peace deal, as expectations of returning Middle East LPG supplies has eased concerns over butane availability, according to trade sources.
Sources explained that the peace agreement has improved expectations for a recovery in Middle East LPG exports, which are predominantly evenly split propane-butane cargoes. The anticipated return of these mixed cargoes is expected to increase butane availability in Asia, reducing concerns over limited regional supply.
Butane first began trading at a premium over propane in the third quarter of last year after U.S. exports declined amid stronger domestic demand for winter gasoline blending, tightening butane availability in Asia.
The war, which started in late February, further widened the premium as disruptions removed a significant portion of Middle East mixed cargoes from the market. Traders noted that much of the replacement supply into Asia came from the U.S., where LPG exports were propane heavy, further tightening butane balances.
Vortexa data shows Asia imported 30.41 million metric tons of butane last year, with 20.48 million mt sourced from the Middle East. Asia received an average of around 2.5 million mt of butane each month.
Following the outbreak of the war, butane flows into Asia fell from 2.39 million mt in February to 1.88 million mt in March, well below the monthly average.
With Middle East exports expected to recover following the peace deal, Asia’s imports of butane in July are estimated at 2.15 million mt, according to Vortexa.
Prior to the conflict, the premium for physical butane cargoes over propane stood at around $15/mt in mid February. OPIS assessments showed the premium widened to $70/mt by mid-March and reached $100/mt by the end of the month. The premium peaked at $135/mt in late April.
After news emerged on June 14 that the U.S. and Iran had reached a memorandum of understanding, the physical butane premium over propane narrowed to $30/mt on June 15, down from $50/mt in the previous session, according to OPIS assessments.
Traders noted the premium continued to narrow and since June 18, physical butane and propane cargoes have been trading at a parity.
At the same time, analysts said stronger propane demand has also contributed to the narrowing spread. Chinese propane dehydrogenation operators have returned to the spot market to secure August cargoes following the decline in LPG prices, lifting physical propane values.
Asian importers have issued seven buy tenders since last week, five of which were from Chinese PDH operators.
The CFR Japan propane and butane flat prices were both assessed at $594.50/mt on Tuesday, according to OPIS assessments.
—Reporting by Cheryl Lee, clee@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com