Ningbo Huatai buys propane for Nov-Dec, marks Chinese LPG demand recovery

Chinese petrochemical maker Ningbo Huatai Shengfu Wealthy Polymer Material bought up to 69,000 mt of propane for end-November to early December delivery, heralding the recovery in spot Chinese LPG imports in December following the return of propane dehydrogenation plants from maintenance, trade sources said Oct. 27.

Ningbo Huatai operates a 600,000 mt/year ethylene cracker at Ningbo, in northeast Zhejiang province, which started operations in Q2 2021. The company bought by tender from PetroChina 23,000 mt or 46,000 mt of propane, on a delivery ex-ship basis to Ningbo over Nov. 25-Dec. 5, and 23,000 mt of propane, DES over Dec. 6-15, sources said.

The cargoes were bought at a discount of $3/mt to the Argus Far East Index, DES, sources added.

"Imports in December seem better," a trade source said.

But any rebound in imports would be limited by PDH plants operating at 80% of capacity, with margins estimated to stay negative, sources said, as Asian LPG prices hovered at multiyear highs.

Further, the upcoming Saudi November term contract prices are expected to climb for the sixth straight month, even as Chinese industries have to curb operations due to limited power supply.

Still, current PDH operating runs are above average rates of 59% in September, which were down from 68% in August, to the lowest since January 2018 when S&P Global Platts began tracking data from domestic information provider JLC. The low rates resulted after six plants reduced runs due to regular maintenance, power rationing and lower downstream demand.

Negative processing margins in September were due mainly to the increase in the cost of propane feedstock above that of domestic propylene prices, Platts calculations showed.

Negative margins

Margins remained negative in October, as front-cycle H1 November-delivery CFR North Asia propane jumped to $910/mt Oct. 6, the highest since June 24, 2014, at $922/mt, before the new front-cycle H2 November delivery propane eased to $864.5/mt Oct. 26, a near two-week low.

In September, the theoretical processing margin for Chinese PDH plants was estimated at minus Yuan 30/mt ($4.6/mt) -- the weakest since April 2020 -- and down from around plus Yuan 108/mt in August, Platts calculations showed.

The Saudi Aramco term contract prices have also been strengthening, with lifters recommending the November propane CP at between $835/mt and $860/mt and butane about $15/mt to $20/mt below that, traders said. One North Asian trader said the highest level for the CP, due to be announced at the weekend, should be around $850/mt.

Chinese government announced new emissions control measures mid-September, requiring industries using coal for generation to reduce rates or shut down.

The energy shortage and weaker outlook for propylene downstream is likely to limit buying of propylene feedstock, which has already pushed down the propylene CFR China marker by $175/mt on the week to $950/mt CFR China on Oct. 26.

Ningbo Huatai's LPG feedstock demand is estimated at 800,000 mt/year and imports around 500,000 mt/year, trade sources said.

The cracker uses about 70% propane and 30% refinery gases as feedstock. Most of the propane, totaling about 700,000-800,000 mt/year are imported, with some volumes sourced from the local refining system.

State-run Yantai Wanhua Chemical restarted its 750,000 mt/year PDH plant at Yantai, Shandong province Oct. 13, following a 40-day maintenance, while Fuji Petrochemical in Zhejiang restarted mid-September after scheduled maintenance.

China has 12 major PDH plants, which have a combined propylene production capacity of 7.97 million mt/year and require up to 9.56 million mt/y of propane as feedstock when operating at full capacity, Platts calculations showed.

China imported a total 2.13 million mt of LPG in September, up slightly month on month, and almost 20% on the year, General Administration of Customs data showed, led by shipments from the US at 882,914 mt, up nearly 21% on the month and almost 27% on the year.