China's import cost of liquified petroleum gas (LPG) is expected to remain high after Saudi Aramco released the November contract price for propane and butane, and the downstream sectors are likely to suffer losses in November, according to OilChem analysis.
Saudi Aramco, a state-owned refinery in Saudi Arabia, recently raised the November contract prices of propane and butane by $10/tonne at $635/tonne and $630/tonne respectively, which surpassed the market expectations. And the prices are Yuan 5,276/tonne and Yuan 5,237/tonne respectively CIF China.
The momentum has been allowed by the tightening spot supply and moderate burning demand in the Middle East. However, China's domestic demand is projected to stay flat in November, potentially bringing losses to the importers.
On the demand end, the LPG prices have been on the downtrend in the traditional seasonal high in South China region, a major consuming region in China, partly due to the slowing economic development. In addition, the soft gasoline demand has pulled back the prices of post-MTBE C4, the raw material of residential LPG. Therefore, when the import cost is likely to remain high November, the soft domestic prices are likely to bring losses to the importers.
Source: OilChem
Another important sector is PDH (propane dehydrogenation), which has experienced rapid growth in recently years, with China's total PDH capacity reaching 21.52 million tonnes/year. China's PDH plants mostly use imported propane as the feedstock, and rising propane contract prices will certainly squeeze the profits of domestic PDH plants. What's more, rising supply has made the market oversupplied again.
Source: OilChem