Petchem Consolidation, Rising Prices Curb Asia’s LPG Cracking: OPIS Poll
Asia’s flexible crackers are set to reduce LPG cracking volumes in February as petrochemical consolidation gathers pace in East Asia and LPG prices rise amid tight supply, according to the latest monthly OPIS cracking survey concluded on Jan. 8.
Flexible crackers capable of processing both naphtha and LPG plan to crack about 284,000 metric tons of propane and 156,500 mt of butane in February.
January’s planned cracking volumes have been revised down from earlier estimates of 338,000 mt of propane and 129,500 mt of butane. Actual December cracking volumes stood at 358,000 mt of propane and 166,500 mt of butane.
Petrochemical Overhaul Caps Cracking Volumes
Some East Asian cracker operators reported lower cracking volumes due to government-backed efforts to overhaul the petrochemical sector and address overcapacity. Asia’s petrochemical industry has been struggling with excess capacity and weak margins, largely driven by rapid expansion in China in recent years.
The overhaul measures include reducing effective cracking capacity by phasing out older units and resizing existing plants.
South Korea is a key player in the consolidation push and has already moved ahead with the initiative, with many petrochemical companies submitting restructuring plans late last year. A South Korean cracker operator told OPIS that feedstock procurement has been reduced as companies monitor the progress in restructuring.
“We are taking a wait-and-see approach. It is still unclear how consolidation will affect flexible crackers and cracking volumes, so we are holding back on buying for now,” the operator said.
South Korea’s cracking volumes dropped to planned levels of 245,000 mt of propane and 85,000 mt of butane in January, down from December’s actual volumes of 248,000 mt of propane and 100,000 mt of butane. Planned volumes have fallen further in February to 222,000 mt of propane and 83,000 mt of butane.
Petrochemical producers in Japan are also undertaking consolidation, though at a slower pace than in South Korea. Refiners Idemitsu Kosan and Mitsui Chemicals announced on Dec. 19 that they will consolidate ethylene facilities at Chiba by July 2027.
However, some Japanese cracker operators said the consolidation has not yet affected cracking volumes. Butane cracking volumes across Japanese crackers were around 35,500 mt in December, with planned volumes falling to 24,500 mt in January before rising again to 38,500 mt in February.
Rising LPG prices amid fog-related supply disruptions
Cracker operators said recent fog at the U.S. Gulf Coast has affected LPG flows into Asia, with supply tightness putting upward pressure on prices. Fog conditions that started in December last year led to intermittent closures of the Houston Ship Channel, affecting vessels scheduled for January and February delivery into Asia.
“LPG prices started rising from December, when supply tightened and winter restocking demand picked up. LPG cargoes have been too expensive for some time already, and naphtha is currently more economical to crack,” a Southeast Asian cracker operator said.
The CFR Japan LPG flat price rose to an average of $540/mt in December, up from November’s average of $507/mt, OPIS assessments show. It has averaged $535/mt so far in January, as of Jan. 8.
With the rise in LPG prices, the spread between the Far East propane swap and the Japan naphtha swap has narrowed and moved away from the $50/mt threshold — the level at which LPG becomes significantly cheaper than naphtha and encourages operators to switch.
The spread closed at minus $14.07/mt for January and minus $29.07/mt for February as of Jan. 8, OPIS data shows.
Operators also noted that the fog has added uncertainty to LPG delivery schedules, with shipping routes disrupted and cargoes delayed by up to one to two weeks. This raises the risk that feedstock may not arrive in time for cracking.
“There’s just too much operational risk,” another cracker operator said.
As of Jan. 8, spot CFR LPG flat price was assessed at $532/mt, falling from $560/mt a
month before, while the CFR Japan naphtha flat price was assessed at $541/mt, down from $572/mt a month before, 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