Commodities 2021: China leads LPG demand march, global supply seen balanced

S Korea's domestic sales set to sustain uptrend to meet petrochemical demand

China's 2021 LPG deficit net of exports seen 20.5 mil-21 mil mt

India's 2021 LPG demand seen at 28.3 mil mt, imports 17 mil mt: Platts Analytics

Petrotahlil — Asia's LPG demand in 2021 will again be led by China, driven by additional processing capacity at three new PDH plants and recovering post-COVID economic growth, while South Korean domestic sales are set to sustain this year's uptrend to meet petrochemical requirements for medical goods production. 

This will keep LPG prices supported, but muted Indian demand early in the year could moderate the increase.

While the US has started to show healthy shipments, with 2.9 million mt estimated for January arrivals to Asia, US propane exports are projected to fall 8% from 2020 estimates and average 1.1 million b/d in 2021, the North American NGLs Five-Year Forecast showed.

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Tightening forecast production suggests a slight contraction in average annual output to 1.8 million b/d in 2021 before recovering to pre-pandemic levels by mid-2022. US propane stocks briefly surpassed a record 100 million barrels early October, but have since eased. Exports are expected to average 1.5 million b/d by 2025.

The US' normal butane exports are forecast to fall 44% from 2020 estimates and average 183,000 b/d in 2021.

With global propane demand rising faster than butane, exports are forecast to return to pre-pandemic levels by 2023 and average 316,000 b/d by 2025.

EYES ON IRAN EXPORTS, US CARGOES TO CHINA

Middle East supply will depend on the OPEC+ alliance's decision at its Jan. 4 meeting, for which it is expected to stay cautious as a new coronavirus strain may weigh on global oil demand outlook early next year.

At its Dec. 3 gathering, OPEC+ agreed to raise output by 500,000 b/d from January and meet monthly to determine subsequent levels, while ministers decided to taper cuts in January by raising production by 500,000 b/d instead of 1.9 million b/d originally slated for the month.

Amid a mixed supply outlook, Asian traders are watching whether President-elect Joe Biden's administration will return to the Iran nuclear deal, which President Trump exited mid-2018.

China last week urged Washington to return to the Joint Comprehensive Plan of Action without condition and remove all US sanctions against Iran and related entities, while Iran's leaders ordered its oil sector to prepare to ramp up production and exports next year.

"Iran flows to China may resume under Biden in 2021," a North Asian trader said. "2021 will be good year for buyers," he said. At its peak, before the sanctions, Iran exported 15 LPG cargoes/month.

After an 18-month pause due to high tariffs on US imports, Beijing announced the acceptance of applications for waivers to import US LPG on Feb. 17. Since March 2, China accepted applications for tariff exemptions on 696 US-origin goods -- including crude, LNG and refined products such as LPG -- which will allow it to meet purchase targets under the US-China trade deal.

Chinese import of US LPG has since been recovering and the US remained China's top LPG supplier in November.

Though China's imports dropped 40.8% on the month to 438,686 mt in November, down from the record 740,604 mt in October, the US remained its biggest LPG supplier over January-November, sending 4.29 million mt, customs data showed.

According to Platts Analytics, China's LPG deficit net of exports for 2021 is likely to be around 20.5 million to 21 million mt, roughly 2 million mt higher, propelled by PDH plants and steam cracking operations.

While a Chinese trade source is hopeful US-China trade ties will continue to improve under Biden, he cautioned that the incoming president will "be harsh too" towards China.

But China can balance shortfalls from the US with Middle East supply -- especially if Iran resumes normal exports, as well as from Australia, Canada and West/North Africa, he said.

INDIA IMPORTS SEEN GROWING 1%-2%

Platts Analytics projects Indian 2021 LPG demand to touch 28.3 million mt, some 1.2 million mt higher year on year, with imports around 17 million mt.

The supply-demand equation could change quickly if India's government decides to offer free-LPG refills to Pradhan Mantri Ujjwala Yojana

beneficiaries in the next fiscal year, Platt Analytics said.

India's LPG demand and imports were each forecast to grow 1%-2% in 2021, as connection coverage is set to surpass 99% by end-2020, a state oil company source said.

Southeast Asia's import dependency is likely to increase further due to COVID-19, while Asia's deficit is likely to be 69 million to 70 million mt for 2021, according to Platt Analytics.

VLGC rates on the Persian Gulf-Japan route, which have soared to more than five-year highs of around $110/mt mid-December, are expected to stay strong in 2021, on China's LPG demand upsurge and favorable West-East arbitrage led by steady Asian prices supporting US flows, even after the first-quarter vessel shortage on a busy dry-docking schedule ends.

Dorian LPG's chief financial officer Ted Young said the freight strength is due to favorable product pricing, petrochemical sector demand due to the need for PPE equipment and LPG growth replacing dirtier fuels, coupled with a balanced fleet size.

"We do not believe the industry is short shipping at this point. The orderbook is about 13% of the fleet on the water, which corresponds broadly to the number of older ships in the global fleet, " he said.