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China Q3 imports of US LPG to remain low on poor margins

China Q3 imports of US LPG to remain low on poor margins

BEIJING: Shipments of liquefied petroleum gas (LPG) from US to China are expected to remain limited in the third quarter as the arbitrage window may still remain shut amid strong US domestic demand and weak China prices, industry sources said on Monday. China has been cutting imports of LPG cargoes from the US since May as margins have turned negative, ICIS China data showed. The country’s imports of LPG fell by 7% month on month to 340,000 tonnes in May from 370,000 tonnes in April and dropped further by around 13% to below 300,000 tonnes in June, according to data from China Customs. The share of US LPG in China’s total imports has dwindled from 28% in April to 17% in June, the customs data showed.

ICIS calculation based on shipping fixtures showed that LPG cargoes flowing to China from US stood at 132,000 tonnes in July, a sharp 56% drop from June, amid poor margins. According to ICIS China data, the theoretical arbitrage margin for US propane to Asia averaged minus yuan (CNY) 3/tonne in May, minus CNY9/tonne in June and minus CNY22/tonne in July, respectively. China’s domestic prices of LPG have dropped sharply in the past few months, with wholesale prices of imported LPG in east China decreasing by or 23.7% to CNY2,975/tonne in early July from CNY3,900/tonne in early April. Meanwhile, prices in southern China contracted by 25.3% over the same period, according to ICIS data. The high supply of Middle East cargoes and seasonal drops on utilities demand in summer have also combined to drag down the prices. In contrast, US LPG prices were relatively firm as domestic demand has been picking up.

Propane demand in US is usually strong in summer on the back of higher consumption from the farming sector, according to an industry source. Another market source said that some tightness was seen in the US LPG export market in July, which indicates solid demand in the domestic market. As a result, Chinese importers has reduced the lifting of US cargoes and several players have even cancelled some term cargoes. The number of US-origin term cargoes cancelled in August, however, has been lower compared to July so far, according to industry players. The arbitrage window may open again in the fourth quarter when China’s LPG demand rises in tandem with higher consumption by the heating utility sectod and as demand in the US weakens.