Same old, same old, day after day, week after week; Brent and WTI prices always seem to go up then they go down, usually ending up hovering around $40/ Bbl. Unfortunately, the only spikes appear to be in coronavirus numbers in Europe and the U.S., and by Friday night the mid-week gains in crude oil prices, mainly on the back of bullish EIA and API crude oil inventories, had been squeezed out of the market by yet more news of lockdowns in Europe’s major economies. Add-in the bearish news for supply earlier in the week, with the ending of the Norwegian offshore strike, Libya’s biggest oilfield Sharara re-starting, plus Hurricane Delta passing through, and we’re back where we always seem to be on a Friday evening – apparent stalemate! But don’t switch channels too soon, LPG has certainly broken ranks, and it’s showing a lot more momentum, well until Friday that is!
The worrying news regarding the 63,000 COVID-19 cases reported in the U.S. on Thursday, a record 10,000 in Italy on Friday, 362,000 in the U.K. in the last two weeks and so on, has certainly meant I’ve taken my eye off the other big story that’s about to reach its crescendo, what the world might have to endure if Joe Biden is elected to be the new President of the United States of America in just over two weeks’ time, or maybe even longer if they have to count all those postal votes. It’s expected that Joe Biden’s economic vision will be, to mainly go with the flow, but he will certainly lurch away from many of the policies of President Trump. The shale patch is concerned, not just because Biden has form regarding an “anti-fracking” position, but more the fact that at least two of his likely lieutenants are anti-fossil fuel. So, additional red tape may well start to increase costs, threatening an already fragile sector. That’s not good for the future growth of LPG production in the U.S., and that’s not good for exports either. I’m also waiting to see his position on trade talks with China. Biden is supposedly at heart a “free-trader”; therefore I expect he’ll be a little more civil than President Trump has been on the subject.
The players in the LPG market are currently facing a conundrum, and it centres around the relative strength of the Asian economies, not only today, but also as we look forward into 2021? It’s a bit like the 100 metre sprinter getting out first from their blocks, such as China, Korea, Taiwan and the other north east Asian countries, with the probable exception of Japan, all having stolen a march on the U.S. and especially on Europe. They appear to be coping quicker with the health and economic impacts of coronavirus, moving forward faster, and that’s showing through with how the ARB is behaving.
The Asian FEI price for cargoes delivered into the region has accelerated beyond the upward movements of Brent in recent weeks, the standard under-belly for the FEI, and the strength has also been transmitted into the Ginga window. From negatives in the $20s/ Mt back in early September, the market had recovered more than just its composure, with Thursday’s window seeing a deal done for the second half of November at $6.50/ Mt above the same month’s FEI quotation, with other apparently strong bids still on the table. But Friday’s skirmishes started to resemble it’s big oil brother, a cooling-off period maybe, but another sign of uncertainty, and also how far this market should go in believing whether the roars of the Asian bull are for real, or are just being puffed-up by trader antics.
But one thing is for sure, whatever the winter in North East Asia has in store for us, propane import demand for propane dehydrogenation (PDH) plants in China is already on the way up. And this is against the strong back-drop of an OECD forecast showing China’s economic growth recovering to nearly 8% by the end of 2021. The Chinese PDH plants are now operating close to 90% of capacity, with the overall numbers bolstered by the start-up in the late summer of the regional brothers Zhejiang Huahong and Zhejiang Petrochemical. Margins are strong and continue to widen, giving players the confidence to expect continued buying from a sector fast approaching 50% of China’s total import requirements, at a massive 10 million Mt per annum.
Although we are bound to see the odd hole in the road, the demand momentum in Asia looks pretty solid to me on two of the three fronts I’d be scrutinizing, economic growth and propane demand for PDH. The third is the winter outlook for the more northern regions of Asia, and there are weather reports, being sold for decent money, saying that temperatures could be on the low side approaching the New Year. So who can be surprised to see the ARB levels reaching the mid-$160s/ Mt, before easing by about $10/ Mt in Friday’s mini-reversal, to the lower $150s/ Mt?
While the market awaits Saudi nomination acceptances for November, there was some spot FOB activity in the Middle East, with a Qatari cargo in mid-November being sold with one of those rarities in recent weeks, a premium! But the focus again was more on U.S. goings-on, especially on their side of the ARB bargain. I think it’s fair to say that the U.S. Gulf FOB resale market is also showing signs of cooling, and that’s not temperature driven. A sure sign is when activity levels ease to a whimper, but it might only be short-lived as the talk of 11 or even 12 cents/ gallon terminal fees may well return next week. The question is whether we will also see exporters slip a few more cargoes back into the November arena. Mid-week EIA stock figures told something of a contrasting story, with a draw overall being skewed by a small build in the PADD 3, Gulf Coast area, while the Marcus Hook region inventory levels slipped. It may well be ships missing or making cut-off times, but again it throws out a degree of uncertainty.
The additional pull of cargoes to Asia is the equivalent of “joy” in the minds of the ship owners, as well as those traders controlling ships. And there must have been a degree of virtual celebration going-on in Singapore, London, Athens, NY and Oslo, as rates for the Houston to Chiba standard crossed the $100/ Mt line for the first time in a number of months, may be the equivalent in LPG shipping terms of a keg of aquavit crossing the Equator, certainly for those of Norwegian origin! But as with the aquavit, the following morning can lack any real momentum, and that was certainly true as rates simmered on the back of a few ship programming hangovers.
As all eyes continue to focus on coronavirus data, the appeal, or may be fear, of the impending election of the most powerful person in the world. There’s no doubt it will start to increase its grip on us over the next couple of weeks, so may be it’s time to also take stock of where we are actually heading in the LPG world. Let’s make LPG great again!