SIMON SAYS: All we wanted was Good News!

Submitted by Simon Hill on Sun, 11/15/2020 - 05:00
All we wanted was Good News!

Day after day, week after week, the dark news of the number of COVID-19 cases, hospital admissions, and sadly deaths, has again been accelerating, a second wave, with more lockdowns, more instability, and yet further potential consequences for global demand. And then out of the blue came the news that Pfizer and BioNTech’s test vaccine had a success rate of over 90% in cutting your chances of developing coronavirus symptoms. That’s in-line with measles and it’s streets ahead of the flu jab.

The news stirred-up a massive frenzy in nearly all markets, not least a surge in the oil price, back up above $40/ Bbl and beyond. But the euphoria has dampened a little as the week has gone by, as the vaccine still needs FDA and other approvals, there’s also issues associated with the mass production of the vaccine, which countries have it and which don’t, and how and when can the immunization programme begin. Even though the OECD club of rich economies predicted a jump of 2% in 2021’s growth projections to 7%, most players in the oil market became increasingly hesitant, as most felt the impact of the vaccine wouldn’t materialize until the second half of 2021.

But a lot of this enthusiasm seemed to go over the heads of most players in the LPG sector, not that they didn’t feel the hope, both personally and for the LPG business itself, it was more that they were already in-amongst the positive forces of the winter market. Of course there was the usual surge in the December CP paper fixings, and propane in the U.S. reached its highest level since the beginning of the year. Otherwise the market was a little same as, same as.

The LPG market, because of its relatively small size, tends to operate nearer the front of the curve, where the feeling of “certainty” (that misused word) is more abundant in the minds of market players. This becomes more prevalent in the winter as buyers tend to be a little impatient if cargoes are delayed, or colder weather takes grip, with backwardation gaining a greater hold. In fact the volumes of paper-trading beyond the first quarter of next year is relatively small, with trades a little hard to come-by. Given the vaccine news, I had expected to see stronger contango in the oil markets heading into the summer of 2021, but that hasn’t necessarily been the case, as players responded to the “now” factor, the immediate feelgood dynamic of hearing the vaccine news. The LPG market had already stepped away a little from the gyrations of the oil price, more inclined to try and uncover shorts in the market, waiting for that winter move.

The window in Asia was teasing the double digit mark for premiums above December FEI, aimed at propane arrivals in the last 15 days of the year.  Outside of the window traders were heard scampering a little more for cargoes and positions, not driven by vaccine news, more concerned about delays and the intensifying demand switch away from split cargoes in favour of propane. Chinese buyers, especially into the eastern side of the country, were snapping up December cargo arrivals, then re-appearing to buy more. Traders have therefore been actively looking at full VLGCs, but it seems that the earliest they can do so is for January delivery, with only a Qatari FOB cargo appearing later in December in the Middle East, amongst hearsay of some potential delays in ADNOCs December programme, while we wait for Saudi Aramco to release their dates next week. There is a cargo in Australia from Port Bonython that’s come into the mix for lifting in mid-December, but it’s not going to change much of the cargo thirst.

One slice of the market that did take a longer term view was the term arrangements for 2021, mainly Chinese buyers looking to secure cargoes at the CP plus $30s type levels. Normally you’d get the odd one, but even I could count five period requirements emanating from Chinese buyers. It keeps telling me how more advanced China is in the coronavirus recovery cycle, especially seeing the official tally of deaths from the disease are less for the whole year than the U.S. have had to endure in just the last week! I think this is going to be an increasing factor in 2021. There was also term demand in India, with BPCL searching for volumes to cover 90% of their annual volume requirements, it was certainly the week of the 90% rule. Looking at the pricing talk it’s clear again that buyers believe that CP will be over-priced, not merited by the actual supply/ demand balances in the Middle East, even in these uncertain times. But traders view positions as part of a system building matrix, as nobody does the CP plus freight equals the price calculations any more. Traders are busy assessing what levels spot cargoes in the Middle East will be sold at, and today they see the forward market potentially littered with discounts, allowing the nimble trader to blend physical and paper CP deals to match the term positions they are looking to hold. But it’s not easy.

After the disappointing damp squib of the prolonged U.S. election result, the U.S. LPG export market has seemingly mirrored this feeling, with re-sale numbers that apparently work on paper, given netback levels, still don’t seem to be allowing the deals to get done. However you calculate the ARB, and with my abacus in hand, even with a couple of beads missing, I still get to netbacks in the 11s and 12s cents per gallon, yet the market is stalling in the high single digits. I don’t think I can even say 10 cents/ gallon! The export terminals claim they are full, re-sellers are filling their own ships, seemingly unwilling to on-sell, except it appears to my old buddies at SwissChemGas, and it’s all come to a relative go-slow. I guess speculators fear delays, or are we seeing a narrowing of players that are able to step up to the mark. I’m sure I’ll be proved wrong next week. in the meantime the ship -owners keep nudging rates up above the $105/ Mt level for the Houston to Chiba run, that’s over $1.6 million per month on a time charter equivalent for an 84,000 CBM VLGC, cough, cough!

On a gloomier note I keep spotting worrying news on the future of Ferrellgas in the U.S., as they battle to re-structure debt after defaulting on $350 million plus of loans in the summer, and there’s more loans maturing. I’ve never fully understood the rationale for the behavior of the company corporately, but while I was there for a brief period, in the growth spurt post the Buckeye acquisition, I recognized a lot of very good people. There were many years of top-notch trading talent passing through Ferrell International, which ultimately disappeared, many of them well after my time. I hope Ferrellgas find a way to survive, but it does make me think that the demand pull from the international market in the next year will force US propane retailers to find that little bit extra to be able to compete for those domestically produced barrels.