China's weekly LPG imports slump as COVID-19 dampens household, petrochemical demand.

Petrotahlil - China's weekly LPG imports were estimated around 250,000 mt in the first week of February, after news of the deadly virus emerged, and fell further to 187,000 mt last week, domestic information provider JLC data showed.

The average for the last two weeks of February 2020 stood at 218,500 mt, lower than the average weekly volume of around 340,000 mt in February 2019, S&P Global Platts calculations showed.

The February 2020 average weekly volumes were also below the estimated weekly average of 340,000-490,000 mt for the whole of 2019, as per the calculations.

Trade sources attributed the lower imports in first-half February to poor domestic demand, raising market concerns it could lead to a stockbuild and prompted major importers to re-offer, or seek deferral of cargo arrivals if the crisis lasted through April.

While demand for industries has been recovering slowly since last week, as factories return from extended Lunar New Year holidays and shutdowns amid government calls to revive the economy, it remained poor at 40% to 50% of normal levels, trade sources said.

"I think the developments are still the same, that South China household sales are not picking up," a market source said. "But PDH plants (demand) is picking up."

A source at an LPG import terminal in Zhuhai, southern Guangdong province, said while demand is slowly returning, many factories and restaurants remained shut, or running at slower pace.

Sales in first week of February was 10-20% of normal levels, while in the second week, it improved to 30-40% of normal level, the source said.

Sales volume at some southern China terminals was heard to have risen to around 50% their normal level last week, the source said, adding he hopes market demand would continue to climb towards end-month with more factories restarting. Sales in Eastern China are better than in the South, but the volume has also been cut by more than half, sources said.

The coronavirus mainly impacted the market after around January 23, further dampening demand and forced two more PDH plants to reduce runs, Platts reported. Households and the commercial sector, which account for half of China's LPG demand, are hampered by transport and logistical gridlock caused by the provincial government's controls to limit the outbreak.

For example, a major household distributor sold 200-300 mt/day of LPG in southern regions in the first week of February, accounting for around 10% of normal daily sales. Those volumes were mainly sold via third-tier distribution stations, sources said.

Some distributors were heard to have faced difficulties accepting supply due to distribution bottlenecks, though a major supplier denied that distributors and customers had defaulted on contracts. "It's useless to take action against buyers for not meeting their contracts due to epidemic or transport controls," a source familiar with the matter said.

PDH plants' low operating rates

China has nine PDH plants with 5.66 million mt/year of combined propylene production capacity, and can process up to 6.79 million mt/year of propane at full capacity.

The country also has five mixed alkane dehydrogenation plants, with estimated annual processing capacity of 2.85 million mt, adding up to around 9.6 million mt of potential propane and butane demand, which used to be mainly imported.

In the first two weeks of February, PDH plants' average operating rate is estimated at 74%, JLC data showed. Though above January's average operating rate of 63%, it was down from 85% in December and 91% in February 2019.

Petrochemical plants normally keep operating rates lower in the month of China's rural new year -- usually in January or February -- due to weak demand as factories shut for holidays.

Four of nine PDH plants closed for maintenance last month on negative processing margins, while China's Q1 GDP growth projection has been revised down to 4%. The country has been recording growth of above 6% over the past five years.

Operating rates at mixed alkane dehydrogenation plants have been reduced to around 67% in January, from 85% in December, JLC data show.

"Disruption in the LPG value chain and reduced industrial activity (is expected) to lower China's Q1 demand by roughly 1.02 million mt – with industrial demand accounting for roughly two-thirds of the drop," said Manish Sejwal, LPG markets adviser at Platts Analytics.

PDH plants' theoretical processing margin was estimated at minus Yuan 275/mt ($39.8/mt) in January, lower than minus Yuan 47/mt in December, and posting the fourth consecutive month of declines since October, according to Platts calculations.

The negative margins are due to costlier propane imports -- when CFR North Asia LPG prices over end-December/early January hovered near 15-month highs -- and lower domestic propylene prices, Platts data showed.

Reduced Chinese demand has pressured prices, with FOB propane from the Middle East -- China's major supply source amid trade tensions with the US -- sliding to a near six-month low of $333/mt February 4. FOB Middle East propane has since recovered to $415/mt Monday, while CFR North Asia price rose to $405/mt from a five-month low of $348.5/mt February 4, Platts data showed, on demand from South Korea, Japan and Indonesia, along with a healthy number of physical market bids.

Brokerage Poten & Partners said China's LPG demand is expected to reach 62.5 million mt in 2020, down 2.1 million mt from its previous forecast. LPG imports this year are now forecast at 24.7 million mt, some 1.6 million mt below its previous forecast, though demand and imports are expected to be higher than 2019 with the start-up of four new PDH plants and provided the coronavirus impact is not extended, it said in a report.

But Sejwal said: "Reduced downstream derivative demand [is expected] to delay the start-up dates of new PDHs from Q2 to Q3 2020".

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Source : Platts

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