Panama Canal Cuts, High Prices Weigh on Asia’s LPG October Cracking Volumes: OPIS Poll

El Nino-linked daily transit cuts at the Panama Canal and rising LPG prices are likely to cap October cracking volumes across flexible crackers in Asia, according to the latest monthly OPIS cracking survey concluded on Tuesday.

Planned October LPG cracking volumes totaled 371,000 metric tons, comprising 278,000 mt of propane and 93,000 mt of butane. This is down from September’s revised cracking volume of 413,000 mt. Actual August cracking volumes stood at 422,000 mt.

Panama Canal Cuts Disrupt US-Asia Cargo Flows

Several cracker operators noted a dip in October cracking volumes due to reduced daily transit slots at the Panama Canal amid an El Nino-related drought.

The Panama Canal Authority announced in late August that daily booking slots would be reduced to 34 from Sept. 4 and further reduced to 32 from mid-September, OPIS earlier reported. Head of PCA Ilya Espino de Marotta told AFP in early September that further measures could be implemented if El Nino conditions continue.

The majority of U.S. LPG cargoes bound for Asia transit the Panama Canal, making the reduced slots a concern for the region as Asia has become increasingly reliant on U.S. cargoes to replace disrupted Middle East volumes amid the ongoing war.

Vortexa data shows U.S. LPG flows to Asia have been on a downward trend since August. Flows stood at 4.38 million mt in August, before falling to 3.40 million mt in September and 3.30 million mt in October.

Reduced transit slots have also increased competition for available ones, pushing up transit fees and adding to the cost of shipping U.S. LPG to Asia. Shipping sources said auction fees for southbound slots to Asia rose to more than $1 million in August.

“Higher shipping costs have made U.S. LPG less economical for cracker operators, weighing on demand for the feedstock,” one Northeast Asian operator said.

The OPIS-assessed Mont Belvieu Delivered price for Japan, which reflects the delivered cost of U.S.-origin propane into Asia via the Panama Canal, rose into the $700s/mt range in September, up from an August average of $661/mt. The price averaged $774/mt in the first half of September and closed at $820/mt on Monday, according to OPIS assessments.

Continued Middle East Tensions Keep LPG Prices High

Continued Middle East tensions have also contributed to elevated LPG prices, keeping buyers cautious about purchasing expensive cargoes.

Renewed U.S.-Iran tensions in late August pushed flat prices back above the $800/mt range. The CFR Japan propane flat price jumped to $827/mt on Aug. 31 following attacks, up from $776/mt the previous day.

The latest round of attacks on Saudi Arabia’s East-West pipeline last week further pushed LPG prices higher alongside crude, amid continued uncertainty over supply shortages as the war persists. The flat price closed at a four-month high of $922.50/mt on Monday, according to OPIS assessments.

The Far East-to-Japan naphtha swap spread, which indicates the price difference between LPG and naphtha feedstocks in Asia, has narrowed as LPG prices increased.

The forward-month October spread opened at $40.39/mt on Tuesday, below the $50/mt threshold at which operators typically switch from naphtha to LPG feedstock. The spread has also narrowed from a month ago, when the forward-month spread stood at $74.97/mt.

“Buying activity in Asia is now mostly from Chinese propane dehydrogenation operators seeking October cargoes to keep their plants running. Cracker operators seem to be on the sidelines for now,” one source said.

OPIS tracked two buy tenders from Chinese PDH operators this week, with no buying demand from cracker operators.

The CFR Japan propane and naphtha flat prices closed at $922.50/mt and $981.75/mt, respectively, on Monday, up from $725/mt and $760/mt last month, 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, cheryl.lee@dowjones.com; Yiwen Ju, yiwen.ju@dowjones.com; and Chek Hoe Tan, chekhoe.tan@dowjones.com; Edited by Mei-Hwen Wong, mei-hwen.wong@dowjones.com