China’s demand for petrochemical applications, inventory, and retail has led to an increase in propane imports during the three months ending June 30. According to Dorian LPG, a leading liquefied petroleum gas shipping company, the second calendar quarter of 2023 witnessed a healthy supply of LPG, resulting in a drop in propane prices across major regions.
Propane Export Trends in the U.S.
During the second calendar quarter of 2023, the U.S. exported approximately 14.4 million metric tons of propane. With ample inventory levels and additional production volumes, propane prices decreased from around 45% of WTI (West Texas Intermediate) during the first calendar quarter to an average of 34% in June 2023.
Butane Market Highlights
Similar to propane, butane experienced a downward trend in prices due to limited domestic demand in the U.S. By the end of the second calendar quarter of 2023, butane prices fell below 40% of WTI.
Saudi Arabia’s LPG Exports
Saudi Arabia observed a rise in LPG exports, particularly in May of the second calendar quarter of 2023. As a result, contract prices for propane dropped from an average of $700 per metric ton in the first quarter to $520 per metric ton in the second quarter. Similarly, butane prices decreased from $712 per metric ton to $513 per metric ton during the same time period.
Global Pricing Trends
The decline in propane and butane prices was not limited to specific regions. Major importing regions, including the Far East and NW Europe, witnessed a decrease in these prices as well. In NW Europe, propane prices declined from an average of 58% of Brent during the first quarter to an average of 46% of Brent in the second quarter of 2023. Eastern propane prices also saw a similar decline, reaching an average of 54% of Brent during the same quarter. As for butane, after experiencing higher prices in the first quarter due to seasonal demand from gasoline blending, prices declined as demand deteriorated in subsequent months.
Overall, the global market experienced notable changes in propane and butane prices, with various factors influencing supply and demand dynamics in different regions.
Lower Feedstock Costs Drive Improvement in LPG Petrochemical Margins
In the second calendar quarter of 2023, LPG petrochemical margins experienced a significant boost as a result of lower feedstock costs. PDH margins in the East remained stable, reaching similar levels as those seen towards the end of the first calendar quarter. Consequently, Chinese imports surged during the second calendar quarter and are projected to be nearly 3 million metric tons higher compared to the first calendar quarter of 2023. It is worth noting that not all of the increased imported volume was solely used for petrochemical applications, as inventory and retail demand also contributed to the rise. During this period, two new PDH plants were operationalized in China, with another five plants potentially starting in the following quarter, albeit with expected delays.
Cracker Margins Improve Thanks to LPG as Feedstock
On average, cracker margins showed improvement by utilizing LPG as a feedstock in the second calendar quarter of 2023 compared to the previous quarter. LPG maintained its advantage over naphtha, which exhibited negative margins in both the Far East and NW Europe. However, in some plants, operating rates decreased, resulting in suboptimal consumption. Despite these developments, olefin and polyolefin prices continued to face pressure due to the ongoing surge in production capacity alongside sluggish demand. Volatility within the industry is expected to persist throughout 2023.
Baltic VLGC Index Strengthens Further
During the second calendar quarter of 2023, the Baltic VLGC index witnessed further strengthening. The index rose from an average of around $87.4 per metric ton in the first calendar quarter to approximately $96 per metric ton in the second calendar quarter. The continuous tight supply/demand balance, coupled with robust arbs and logistical constraints, including delays at the Panama Canal, consistently maintained freight rates above their 5-year highs for the period.
Fleet Expansion without Impacting Freight Dynamics
The second calendar quarter of 2023 saw the addition of 13 new VLGCs to the global fleet, without causing a downward freight dynamic. Panama Canal delays for the VLGC fleet remained consistent with the first calendar quarter.