Asia’s Cracking Volumes Rise As LPG Supply Tightness Eases: OPIS Poll

June cracking volumes across Asia’s flexible crackers are expected to rise as regional supply tightness has eased following increased U.S. LPG flows into Asia amid the ongoing Middle East conflict, the latest monthly OPIS cracking survey shows.

June’s planned cracking volumes are estimated at 278,000 metric tons of propane and 117,000 mt of butane. May’s planned volumes rose from initial estimates to 272,000 mt of propane and 126,000 mt of butane.

Actual April cracking volumes stood at 234,000 mt of propane and 124,000 mt of butane.

Easing Supply Tightness Supports Cracking Demand

Sources said the increase in May and June planned cracking volumes was largely driven by improved availability of U.S. cargoes into Asia, which helped ease earlier supply tightness in the region following disruptions linked to the Middle East conflict.

“The situation has stabilized with the U.S. ramping up volumes to Asia and more sellers returning to the market. It is easier for importers to secure cargoes now,” a trader said.

Vortexa data showed U.S. to Asia LPG volumes in May rose significantly to 3.99 million mt, up from 3.07 million mt in April. Analysts estimated June U.S. flows to Asia at around 3.5 million mt to 3.6 million mt.

OPIS data tracked around 15 buy tenders issued across Asia in April seeking May and June delivery cargoes.

Market participants noted that the easing supply tightness also softened LPG prices, improving the economics for cracker operators to purchase forward cargoes.

The CFR Japan propane flat prices averaged around $956/mt in the second half of March before falling to $918/mt in the first half of April and further declining to $832/mt in the second half of April. The price decline continued into May, with the CFR Japan propane flat price closing at $827/mt on Monday, according to OPIS assessments.

As LPG prices weakened, the discount of Far East propane swaps against Japan naphtha swaps also deepened, widening the spread between the two feedstocks. The prompt month spread stood at minus $106.99/mt in March and increased to minus $146.05/mt in April, broker data showed.

Cracker operators typically switch from naphtha to LPG when the spread widens beyond the minus $50/mt threshold.

“With LPG significantly cheaper than naphtha, we started switching feedstock in April for later months and securing forward cargoes,” a Northeast Asian cracker operator said.

Uptick in Operating Rates

Market sources said another factor supporting higher cracking volumes was the gradual increase in operating rates among some cracker operators across Asia.

Following the escalation of the Middle East conflict earlier this year, many producers lowered operating rates or declared force majeure amid uncertainty over feedstock availability and volatile LPG prices.

However, market conditions began stabilizing in April as supply visibility improved and operators diversified cargo sources. This prompted some operators to cautiously raise operating rates from previously reduced levels.

One South Korean cracker operator raised operating rates to 65% in May from 60% previously. Total planned LPG consumption among South Korean crackers rose slightly to around 295,000 mt in May, up from 293,000 mt in April.

A Southeast Asian operator told OPIS that while one of its crackers has remained under force majeure since March, the company started ramping up its other cracker from April and is operating it fully to offset lost production volumes in May and June.

Rising Freight Costs Pose Fresh Concerns

However, market participants also note that rising freight rates have emerged as a fresh concern, potentially narrowing the U.S.-Asia arbitrage and discouraging additional U.S. cargo flows into Asia.

Increased U.S. exports to Asia have tightened vessel availability and pushed up freight costs due to higher loading demand.

The OPIS-assessed Houston-Chiba Very Large Gas Carrier freight rate first crossed the $200/mt mark in mid-April and continued to rise, closing at $307.50/mt on Monday, according to OPIS assessments.

“Higher freight costs could erode netbacks for U.S. suppliers, making them less willing to offer cargoes into Asia. It could also push up LPG prices in the region,” an analyst said.

The CFR Japan propane and naphtha flat prices closed at $889.25/mt and $984/mt, respectively, on Monday — down from $943/mt and $1,074/mt in April, OPIS assessments show.

Methodology: OPIS, a Dow Jones company, collects Asia-based petrochemical companies’ feedstock consumption plans for the current and next month, as well as actual consumption in the previous month. OPIS contacts feedstock procurement officers for the survey by phone, email or messages in the last week of the previous month or the first week of the current month. OPIS may use proxy data based on the best market information available for minor missing entries due to non-response by a stipulated deadline. Such proxies should not alter the overall trend or deviate from the general behaviors of most participants.

—Reporting by Cheryl Lee, clee@opisnet.com and Yiwen Ju, yju@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com