Tight Supply, Maintenance to Dent Asia’s November LPG Cracking Demand: OPIS Poll
Asia’s flexible crackers are projected to further reduce their LPG intake in November, extending the downtrend seen since July, as supply constraints and resulting price hikes along with cracker shutdowns continue to weigh on the market, according to sources and the latest monthly OPIS cracking survey.
Total LPG cracking volume for November is estimated at 396,000 metric tons. Although this is slightly above the 393,000 mt in October, both were well below the actual cracked volume of 410,000 mt in September. The projected September tally stood at 413,000 mt.
Specifically, flexible crackers in Asia are expected to process 278,000 mt of propane and 118,000 mt of butane in November. October’s planned volume comprises an estimated 278,000 mt of propane and 115,000 mt of butane, while the actual September cracking volume stood at 265,500 mt of propane and 144,500 mt of butane.
Reduced Flows to Asia, Increased Demand
The drop is due mainly to the recent LPG price rally which has dampened buying appetite among crackers, as price-sensitive operators only switch from naphtha to LPG feedstock when the spread falls below -$50/mt. The forward November Far East-to-Japan propane-to-naphtha spread quote—the indicator used to compare feedstock economics between LPG and naphtha—narrowed over the past month to a discount of $31.88/mt as of Monday, well above the breakeven discount threshold of $50/mt, according to the latest OPIS data.
CFR Japan propane flat prices closed at $965/mt as of Friday, down 0.9% from $974/mt the previous day, but sharply rising from the $909/mt level seen at the start of the month, OPIS data shows.
Reduced daily transit slots at the Panama Canal amid an El Niño-related drought, compounded by risks associated with the Middle East conflict, have cast a shadow over LPG flows. This comes at a time when seasonal heating demand in the fourth quarter is expected to pick up, which could further squeeze overall LPG supply, sources said.
Consequently, the spot production cash margin for crackers using LPG in Northeast Asia has been in the red, with losses standing at $228/mt for the week ended Oct. 1, widening from $186/mt discount the previous week. By contrast, the production cash margin for the competing feedstock naphtha has improved, with losses shrinking to $171/mt from $202/mt over the same period, according to the latest data from Chemical Market Analytics by OPIS.
Still, some crackers are considering higher LPG intake in the coming month, defying the broader downtrend in gas cracking. This comes amid efforts by some operators to reduce reliance on imports by turning to cheaper domestic feeds as a better option.
“The increase [in LPG cracking volume] is only because we received domestic gas,” a Southeast Asian producer source said, adding that imported gas intake has been reduced as a result.
The latest shipping data from Vortexa shows that U.S. LPG flows to Asia have been on a downward trend since July. Arrivals totaled 4.91 million mt in July, before falling to 4.35 million mt in August and 3.50 million mt in September, although estimated volumes appear set to rebound to 4.11 million mt in October.
Meanwhile, a raft of heavy maintenance turnarounds is underway in South Korea. Korea Petrochemical Industry Co. or KPIC is scheduled to shut down in late October for a 40-day maintenance outage. Additionally, Lotte Chemical’s Daesan cracker has been idled since September as part of government-led petrochemical consolidation plans to address oversupply, capping overall feedstock demand.
KPIC runs a cracker in Onsan that has a nameplate capacity of 900,000 mt/year of ethylene and 450,000 mt/year of propylene. The Daesan cracker, previously operated by Lotte Chemical, has a capacity of 1.1 million mt/year of ethylene and 550,000 mt/year of propylene, according to OPIS data.
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, yiwen.ju@downjones.com; Cheryl Lee,
cheryl.lee@dowjones.com; and Chek Hoe Tan, chekhoe.tan@dowjones.com; Editing by
Mei-Hwen Wong, mei-hwen.wong@dowjones.com