Asia’s Flexible Crackers to Raise LPG Feed in May Despite Mideast Risks: OPIS Poll
Asia’s flexible-feed crackers are projected to increase their LPG intake in May amid continuing uncertainties posed by the Middle East conflict, contrary to the decline seen in April, according to the latest monthly OPIS cracking survey concluded on Tuesday.
May’s planned cracking volumes are estimated at 245,500 metric tons of propane and 114,500 mt of butane, both up from April’s planned volumes of 214,000 mt of propane and 94,000 mt of butane. Actual March cracking volumes came in at 233,900 mt of propane and 103,100 mt of butane.
Cracking activities had declined when the newly erupted conflict staunched the flow of most oil feedstock supplies and prompted operators to cut back output. A global search for fallback supplies has since begun, as crackers scramble to scoop up cargoes from alternative regions to mitigate Middle Eastern risks, reversing the lull in LPG cracking activity seen a month earlier.
A pivot from naphtha has further boosted LPG cracking activity, thanks to its lower reliance on Middle Eastern supply, making sourcing LPG cargoes more viable. Flexible crackers in Asia typically adjust their feedstock intake by evaluating the prevailing cracking economics between the two.
More than half of Asia’s naphtha is shipped from the Middle East — excluding a small fraction supplied by India — while LPG supplies appear more diversified, with nearly half of the region’s intake sourced from the U.S., thereby alleviating some of the reliance on Middle Eastern producers. Cracker sources noted that most replacement LPG cargoes have been secured from Canada and the U.S.
The CFR Japan LPG flat price settled at $940.25/mt in the trading session ended on April 7, reaping gains as much as 51% from the $623.75/mt level seen on Feb. 27 before the war. This compares with the 82% gains made by naphtha during the same period.
As such, the April spread between the Far East propane swap and the Japan naphtha swap — a key metric for flexible crackers comparing feedstock economics — was pegged at a discount of $175.67/mt on Wednesday, well within the territory favorable for LPG cracking. Typically, crackers are incentivized to shift from naphtha to LPG when the spread falls below the -$50/mt breakeven point.
The uptrend in LPG cracking activity may still be under pressure, however, as negative margins persist and an effective resumption of shipment flows may still take time, despite the two-week ceasefire between Iran and the U.S. announced on Tuesday. Sources in China, a key LPG-consuming hub, have noted that local operators can only run on feedstocks until the end of April.
“Most operators are just running at whatever capacity their feedstock levels allow,” said a cracker source in China.
The spot production cash margin for naphtha crackers remained in the red, extending the loss to $497/mt in the week ended on March 26, from the average loss of $106/mt made by LPG crackers during the same period, according to the latest data from Chemical Market Analytics by OPIS.
—Reporting by Yiwen Ju, yju@opisnet.com and Cheryl Lee, clee@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com