Saudi Aramco's exports of spot LPG cargoes are expected to be limited for the rest of the year, as supplies are concentrated on domestic petrochemical use and term contracts, industry sources said Tuesday.
Spot shipment for October may be restricted to just one cargo for end-month loading, and the same number is expected for November and December, sources said. This compares with two cargoes for September, four for August and up to 11 spot parcels of 44,000 mt each for July.
"The spot supply depends a lot on the petrochemical sector performance," one source familiar with the matter said.
"So far domestic demand has been steady and the spot situation is tight," he said, adding there have been no shutdowns at petrochemical plants, which would allow for extra monthly spot shipments.
Traders said there is buying interest for an end-September loading Saudi propane cargo at around $1,050-$1,070/mt FOB, but the Saudis may be looking at $1,100/mt before they are willing to squeeze out a third cargo for this month. In contrast, the two spot sales for September had earlier traded at $930 and $1,020/mt.
Saudi Aramco has also announced its acceptance of term contract nominations for October loading, without any major cuts to volumes or delays, trade sources said.
Any buying interest in Asia will come mainly from Japan, which is facing low stocks ahead of winter, as end-August inventories are not expected to be much higher than for end-July, when levels fell by 4.6% to 1.84 million mt, and were also down 11.5% year on year, largely on lower imports.
Stock data for the end of August from the Japan LP Gas Association are expected to be released and the end of this week or early next week.
But the steepening backwardation between October and November Contract Price swaps -- where the front month value has widened to around $26-30/mt against the forward month, compared with $4/mt last Wednesday -- has prompted Japanese traders to hold off their purchases until November. For November/December, the backwardation tapered to just $5/mt.
Japanese buyers are awaiting further falls even though the market has weakened from near six-month highs, pushed by ICE Brent crude futures' $24/mt slide from Monday's Asian close.
Platts assessment for the price of propane for delivery along the major Singapore-Japan route 30-45 days forward fell by $25 Tuesday from the previous session to $1,104/mt, the lowest since September 5. The price is down from the near six-month high of $1,148/mt last Wednesday.
"It's better to wait till November when we can improve our economics, by avoiding buying for October at current high levels," one Japanese trader said, agreeing that there is not much supply available for October from the Middle East.
Other than Saudi Arabia, spot supplies from major supplier Qatar in October are also not expected to be abundant due to maintenance on the LNG trains, while the export situation from Iran in October is unclear after a fire at a petrochemical plant early last month limited spot exports to three each month for August and September.
The steepening backwardated market structure has also deterred traders from moving many arbitrage cargoes from the West to Asia, even though European markets are weaker. This is further tightening the supply situation in the East, traders said.
So far only three cargoes were seen coming East in September, they said.
