China LPG Market to Remain Sluggish in Q2, 2018

In Q1, 2018, China’s LPG average price was RMB 4,248/mt, up RMB 140/mt or 3.4% Y-O-Y. Meanwhile, the average Brent crude oil price was $67.3/bbl, up $12.7/bbl or 18.9% Y-O-Y. Therefore, the increase in China’s LPG prices underperformed.

As seen from the chart above, China’s LPG average prices increased at first and then declined. The highest LPG price reached RMB 4,834/mt, and the lowest price was RMB 3,706/mt, which was lower than that in the same period of 2017. Sellers cut the LPG prices quickly. On the one hand, the LPG prices remained high in Q4, 2017. On the other hand, most sellers suffered sales pressure. Influenced by the quick price decline, most market participants held bearish sentiment towards China’s LPG market. Therefore, the sales at sellers underperformed.

In 2017, influenced by the supply deficit of natural gas in the winter heating season, the demand for LPG surged in some regions. With the heating season coming to an end, the demand for civil-use gas dropped greatly. Besides, the demand for LPG from the deep-processing market decreased to some extent. On the whole, the overall demand for LPG declined from 2017.

As for the import volume of LPG, the LPG import volume in Q1, 2018 dipped from 2017. On the one hand, the consumption of LPG slowed down. On the other hand, the LPG loading delayed due to multiple factors. Moreover, influenced by the trade war, the import cost of LPG rose somewhat.

In the tradition, most refineries took overhauls intensively in the first quarter of a year, but the overhauls at large-scale refineries were limited in Q1, 2018. Meanwhile, the shutdown capacity at China’s state-owned refineries was 76,400kt/a, down 10,100kt/a Y-O-Y.

In April, there are many bullish factors in China’s LPG market: First, most market participants expect that the CP March will trend stable, so the cost of LPG will increase to some extent. Therefore, sellers are active in raising the LPG prices, giving support to the downstream sentiment. Second, the blended oil feedstock market performs well. Therein, the MTBE and alkylated oil prices increase, giving support to China’s LPG market. As the sales pressure on the industry-use gas sellers is relatively low, sellers will continue to raise the LPG prices. Third, the international crude oil prices keep surging, giving strong support to China’s LPG market.

The arrival volume of ships will start to grow in H2 April, and the demand for LPG will drop in May and June. Besides, China’s refineries will not take overhauls intensively in Q2, 2018, giving thin support to China’s LPG market. On the whole, SCI reckons that China’s LPG prices will increase in April and drop from May to June. Moreover, as the demand for civil-use gas will crash, the price spread between civil-use gas and industry-use gas will start to enlarge.