I’ve always been fascinated with the way deals are done, the process of negotiation between two parties, maybe with someone in the middle, maybe not. It can be exciting, frustrating, win some, lose some. I think I was more a guy who wanted compromise, while I ended up doing deals with a number of traders hanging out for the last cent, even though I’m sure I would have done more with them if only they had shown a sign of compromise, it’s always good to blame the other party.
Although last week was shortened by the Thanksgiving holiday, a few more pieces seemed to be falling into place in the U.S., and for that matter when moving out of the U.S. as well. If we then add in a few what might or might not happen questions, it was actually an eventful last week of November. Then came the attention on the U.S. from Asia, concern may be, as well as from a small number of trading houses nestling in the major cities of Europe. But why the concern?
As Thanksgiving holidays approach over in the U.S., we’re experiencing this paradox of having the signs of winter in the midcontinent, stocks dropping over 6 million barrels throughout the U.S. in the last two weeks, but propane exports have just hit a season’s high, with over 1.36 million barrels moving over the docks in the U.S. Gulf, U.S. east and west coasts. Mont Belvieu propane prices have surged on the back of not only the cold weather, but also the hefty export volumes, ending up close to 56 cents/ gallon, while the market was below 40 cents/gallon only 3 months ago, that’s up 40%.
I still believe that if you have any serious intentions to be a player in the LPG world, you need a ship, whether you own it or charter it doesn’t really matter, all that counts is that you have one. Now a lot of people will remind me that the market has been on its knees many times over the last ten years or so, and for many periods before that, and isn’t this just me trying to ride the wave of the current strength in the freight market.
It’s one of the most exciting parts of trading is not just buying a cargo somewhere, anywhere, but being able to fix a ship to load it, especially a Very Large Gas Carrier (VLGC). Of course, I like the pressurised, semi-refrigerated, mid-sizes etc., but to me the big ships are the heart of international LPG trading. I explained in Monday’s SIMON SAYS how the two cost elements of the ARB are the terminal fees, and the freight rate applicable for the Houston to Chiba, Japan voyage.
The summer holiday clothes, the sun cream and photos, are now all destined for the physical and electronic storages, the kids are back, or going back, to school (hooray!), the northern hemisphere nights are drawing in, Love Island is but a dream and those winter TV series are all about to re-start! The structure of our lives is therefore about to change, so why not the structure of the LPG market?
Do prices in Asia or in the U.S. move the ARB, do freight rates move the ARB, do terminal fees move the ARB? I thought it was a pretty good question my 12-year-old son asked me before I left for Houston, clearly the school fees are working! I suppose the easy answer is to say that they all do, but which element moves the ARB the most, and should we care?
I’ve eluded to how the Asian market had lost its mojo in recent blogs, not unexpected at this time of year, but it’s thrown up a lot of questions as to what happens next. In yesterday’s blog we concentrated on the East/West spread, but today I need to answer where the U.S. / Asian ARB is heading.
In Friday’s SIMON SAYS I talked about the move in Asia, away from the relative rigidity of the Saudi Aramco Contract Price (CP), and more towards greater spot pricing, especially as supplies are increasingly related to both Mont Belvieu and Far East Index (FEI) price indices. We know that the majority of cargoes will head to Asia, but what drives cargoes at the margin to seek a buyer in North West Europe, especially when originating from the U.S.?