Asia’s LPG Cracking to Rise on Lower Prices, Naphtha Supply Risks: OPIS Poll
Asia’s flexible crackers are set to increase LPG cracking volumes in December, driven by a decline in LPG prices and concerns over potential naphtha supply disruptions following U.S. sanctions on Russian oil majors, according to the latest monthly OPIS cracking survey.
Flexible crackers capable of processing both naphtha and LPG plan to crack 518,000 metric tons of LPG in December, including 380,000 mt of propane and 138,000 mt of butane, the survey shows.
The November cracking plan was revised upward to 489,500 mt, while actual LPG cracking in October stood at 421,000 mt, down from an earlier projection of 492,000 mt, the data indicates.
The CFR Japan naphtha averaged $571/mt in October, down from $601/mt in September, while the CFR Japan propane averaged $482/mt in October, slipping from $540/mt in September, OPIS data shows.
Falling LPG Prices Spur Buying Spree
Rising LPG use in November and December was supported by a buying spree among importers in October, as prices fell amid bearish sentiment following Saudi Aramco’s announcement of lower-than-expected contract prices.
“LPG became a more economical feedstock after the price drop in October. Crackers have been switching since then,” an analyst said.
LPG’s flat price averaged $481/mt in October, down from $540/mt in September, and stayed low in early November, averaging $495/mt, OPIS assessments show.
LPG has remained significantly cheaper than naphtha. The Far East propane to Japan naphtha swap spread for November and December has stayed below the minus $50/mt tipping point — where LPG becomes more economically viable — since mid-October. The spread closed on Friday at minus $93.02/mt for November and minus $78.02/mt for December, according to OPIS data.
The widening price gap triggered strong buying interest after the first week of October, when Chinese buyers returned to the market following the Golden Week holidays. OPIS tracked eight buy tenders from flexible cracker operators since the buying spree began.
One South Korean cracker operator issued four buy tenders during that period, securing around 115,000 mt per month of LPG for later months—well above its usual 70,000 mt monthly requirement.
U.S. Sanctions Heighten Naphtha Supply Concerns
Meanwhile, U.S. sanctions on Russian oil majors Lukoil and Rosneft, announced Oct. 22, heightened fears of potential disruptions to naphtha supply, prompting operators to turn to LPG as a more secure alternative.
“Crackers need to maintain their regular cracking volumes, so feedstock availability is crucial. The potential reduction in naphtha supply was enough to push operators to stock up on LPG for the coming months. LPG flows into Asia have been steady, so supply hasn’t been an issue,” one operator said.
“Naphtha prices jumped following the sanctions amid perceived supply risks. With LPG prices still low, the price gap widened further, making LPG even more attractive,” another operator added.
The CFR Japan naphtha flat price rose by $24/mt following the sanctions announcement and remained in the $570/mt–$580/mt range thereafter, compared with $540–$550/mt before Oct. 22, OPIS assessments show.
As of Nov. 7, spot CFR Japan naphtha and LPG were assessed at $582/mt and $484/mt, respectively, both lower month-on-month from $589/mt for naphtha and $485/mt for LPG, OPIS data shows.
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