Asia’s LPG Cracking Volume to Dip in September Despite Favorable Economics: OPIS Poll
Asia’s flexible crackers are projected to scale back LPG cracking volumes marginally in September, despite favorable economic terms that have prompted some operators to raise the overall volume, the latest monthly OPIS cracking survey shows.
September’s total planned LPG cracking volume is estimated at 400,000 metric tons, a dip from August’s planned volume of 417,000 mt, after it rose from the actual July cracking volumes of 382,000 mt, according to the survey.
Specifically, flexible crackers in Asia are expected to process 254,500 mt of propane and 145,500 mt of butane in September. In comparison, August’s planned volume comprised an estimated 290,000 mt of propane and 127,000 mt of butane, while the actual July cracking volume stood at 255,000 mt of propane and 127,000 mt of butane.
The contraction in September comes despite the favorable cracking economy for LPG. The Far East propane to Japan naphtha swap spread, an indicator of particular interest to producers in assessing the cracking economy between naphtha and propane, was pegged at a $93/mt discount for September as of Monday, according to OPIS data. Typically, producers would be motivated to crack LPG rather than naphtha when the spread is wider than a $50/mt discount.
The markdown is due mainly to maintenance plans and slack buying demand amid continued geopolitical tensions in the Middle East, while high splitter runs in South Korea have also provided alternative sources for feedstocks in the local market, tempering regional LPG cracking volumes, sources said.
South Korea’s Lotte Chemical plans to shut down its Daesan cracker in September, according to a company source. The cracker has a nominal capacity of 1.1 million mt/year of ethylene and 550,000 mt/year of propylene, according to OPIS data. Operation rates for Yeosu and Daesan stood at 68% and 73% in August, respectively, unchanged from last month, the source said.
Korea Petrochemical Industry Co. or KPIC is expected to start maintenance in October while running some of its downstream units. Industry peer LG Chem is on track to bring its No. 2 cracker offline in Yeosu for maintenance scheduled from Oct. 11 to the end of November, sources said. The cracker can produce 800,000 mt/year of ethylene and 400,000 mt/year of propylene, OPIS data shows.
High splitting rates in South Korea — as high as 90% — resulting from better economics have drawn feedstock demand away to condensate, the ultra-light crude that can yield a high volume of naphtha for downstream ethylene production. With some demand for merchant feedstocks – such as naphtha or LPG — shifting toward condensate, this displacement helps explain the weaker near-term outlook for LPG cracking, sources said.
The slowdown in cracking activities comes amid weak sentiment in the physical market, where a recent flare-up in Middle East Gulf tensions, exacerbated by Houthi attacks disrupting the Red Sea shipping corridor, has led a few crackers to hold off on buying.
Still, some other crackers have opted to crank up LPG cracking in September to seize profitable terms. This is particularly in Japan, where butane is traditionally the preferred feedstock. Defying the overall downtrend observed in the broader market, Japan’s planned cracking volume stands at 56,000 mt each for August and September, both up moderately from the actual cracked volume of 44,000 mt in July, according to the survey.
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 Yiwen Ju, yju@opisnet.com and Cheryl Lee, clee@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com