Last night the January 2020 ARB was floating at just under $230/ Mt, the difference between the propane price in Asia and the price in Mont Belvieu. Freight has slipped to circa $115/Mt for the Houston to Chiba voyage via the Panama Canal, making up only half of the overall differential. Now I don’t think that’s been the case for a while, even when freight rates from Houston to Chiba had slipped to just above $40/ Mt a couple or so years ago. I think someone said this was “helping netbacks”, how much help do they need!
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 know markets are supposedly 24/7 these days, but come on, it’s the holiday season a coming. The market is starting to show signs of easing back, getting programmes sorted and balanced, not taking on any more positions that might need late nights and early mornings sorting out potential problems, instead allowing for late nights and early mornings having fun, albeit in a more thoughtful way, and by the way, that’s not a veiled parallel to our excruciatingly misguided Prince Andrew. But as always there’s bound to be something about to happens that’s going to ruin the party!
We make decisions every day, some good ones and some bad, normally those judgements are made to get things done, but on occasions traders will decide to do nothing, to wait, for a market to move to their desired target, or to wait for something to just change. As we approach a significant period in the year, where seasonality starts to have an increasing influence on our market, traders are naturally a little hesitant, waiting and wondering what happens next.
Over 30 years ago I made my first, and until last week, my most recent visit to Mont Belvieu, Texas, about 40 miles to the east of Houston, along Highway Interstate 10. In the 1980s, I remember there were a few pipes poking out of the ground, and I had just visited Enterprise’s already impressive Terminal, I won’t say export terminal, as they were doing both exports and imports at the time. But now the whole area is a vast array of fractionation towers sprouting up in all areas. Some tall, some not so tall, but none were small.
In yesterday’s SIMON SAYS, I started to explain the physical cost elements that sit in the middle of the ARB price spread, between Mont Belvieu and Japan, i.e. the terminal fees in the U.S. Gulf and the freight rate that applies between Houston and Chiba. I then followed it with the current market rumble I’m hearing on both of the legs, as we approach another winter in the northern hemisphere and as always an interesting time ahead for LPG prices.
In yesterday’s SIMON SAYS I started to explain, I hope as simply as possible, enough about how the ARB works so that you can all go out today and put the trade on, well at least understand why others are. For me it is a pricing relationship that will increasingly dominate the international trading world as more and more LPG is exported from the U.S. in the coming years. If exports do reach 40 million Mt this year, then the U.S. will be a hair’s breadth away from also taking over as the world’s leading export region.
If you were to ask me what is the most important attribute to have in LPG trading, I would say without question it’s momentum! Not too far behind it would come confidence, size, risk appetite, assets, people, reputation and a special courage, some may say foolhardiness. Without doubt none can be taken for granted, they are all inter-related and are constantly changing.
In yesterday’s Part I SIMON SAYS I discussed the current international pricing dynamics stemming from the supply/demand fundamentals which have been somewhat different this year versus recent years. Specifically, how the lack of contract cargo cancellations have impacted Year-on-Year storage excesses in the U.S., the need to move greater volumes of exports, mostly to Asia, but also to Europe as Marcus Hook exports have ramped up, and this extra U.S.
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?