Saudi seen exporting less propane

Propane also diverted as domestic cracker feedstock

Petrotahlil — Saudi Aramco is expected to set its June Contract Prices of propane at parity to butane as it did for the May CPs, even though the kingdom is exporting less propane for next month, traders told S&P Global Platts this week.

The cut in Saudi June oil output, in line with the move by OPEC+ producers, have also reduced production of natural gas liquids, including propane and ethane, limiting feedstock supply to domestic petrochemical plants, traders said.

Saudi Basic Industries Corp., or SABIC -- which faces some ethylene shortage because of less ethane to feed their crackers -- early this month bought a 7,000-9,000 mt ethylene parcel from Europe, traders said. Ethane accounts for around 10% of total feedstock to crackers in the Middle East.

To make up for less ethane supply to domestic crackers, traders said, more propane is diverted into the feedstock pool, which in effect further reduces supply for export.

Saudi Aramco declined to comment on the feedstock supply.

Traders said Saudi Aramco has canceled or deferred up to 10 LPG cargoes in its acceptances of June term nominations, including to six international trading firms, as well as deferments sought by Indian buyers grappling with distribution and storage bottlenecks following heavy purchases to secure supply ahead of the COVID-19 control measures.

But traders said butane is in relatively better volume for export, as the product is used less in the domestic petrochemical sector.

Premium narrows

Under normal market conditions, the propane premium to butane should have widened further, as demand from India and Indonesia -- major importers of mixed propane/butane cargoes -- have also paused after a rush in imports for April-June delivery last month.

Saudi Aramco set its May CPs at $340/mt for both propane and butane. Propane then widened to a premium of up to $33/mt for the June CP swaps early this month, driven by the return of Chinese demand after the lull during the lockdown.

The premium of June CP swaps for propane versus butane narrowed to $15/mt early this week and to $10/mt on May 28.

The narrowing propane premium to butane is also in view of market expectations that Aramco will set the June term CPs at parity in an overall market that is comfortably supplied with propane-heavy US CFR cargoes, traders said.

"I think the market is looking at the MB market for reference," a trader said referring to the US Gulf Coast Mont Belvieu market.

Some traders expect around 1.9 million mt of US LPG to arrive in Asia in June, of which around 20% is butane. Some 2 million mt of US LPG was estimated for May deliveries, trade and shipping sources said.

Other traders expect lower volumes of 1.4 million to 1.6 million mt arriving in Asia in June from the US.

Trade sources said that over the past week, there are still many mixed CFR cargoes on the way and due to arrive in second-half to late-June or in early July, seeking buyers, traders said.

Traders expect Saudi Aramco to set its June propane and butane term CPs -- due by the weekend -- between $330/mt and $370/mt.

With June propane CP swaps valued at $334/mt Thursday, some traders expect June term CPs to be set in a narrower range of $335/mt to $340/mt, almost matching the May CPs.

Naphtha traders said Saudi refineries are running at 70% of capacity, producing less naphtha for export. This could not be confirmed with Saudi Aramco.

East Asian crackers have been operating at full capacity since March due to favorable petrochemical margins, and also been maximizing use of naphtha rather than LPG as feedstock, as propane has been at strong premiums to naphtha and reached a high of $121.25/mt on April 29, S&P Global Platts data showed.

But the June propane Far East Index swap premium over Mean of Platts Japan naphtha swap has since contracted to $17/mt Thursday, Platts data showed, limiting the attractiveness of naphtha as the main cracker feedstock.