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Far East physical propane differentials continue to hover at eight-month highs, but recent market activity suggests high premiums may have peaked at the time when more incremental supplies are expected to hit the market.
Key market drivers
Delivered Japan propane prices have been lifted by improvements in olefins margins that have helped Chinese Propane Dehydrogenation (PDH) plants keep operating rates above 70% since early October, triggering a pickup in feedstock demand. China is the world’s largest consumer of seaborne propane. But seasonal demand has also come in from other Northeast Asian buyers, such as Japan, who are stockpiling for winter demand.
This pickup in demand, had until recently, coincided with supply constraint in the Middle East following seasonal refinery maintenance. As a result, the region’s producers were heard to have pushed back loading dates and imposed the minimum operational tolerances for December term lifters.
Rising shipping costs have also supported Far East physical premiums. Waiting times at the Panama Canal for Neopanamax vessels rose to 6 days for southbound voyages back in middle of November, while southbound auction fees had also ticked higher for mid-December transits. While situation has cooled off lately, freight rates have stayed elevated. Between late October and mid-December, VLGC freight rates for the Middle East to Chiba and Houston to Chiba routes jumped by roughly US$20/MT and $28/MT respectively and held steady at around high US$70/MT and high US$120/MT since.
April tariff spike
The last time Far East physical premiums showed a significant jump was in April, when differentials rose to U$60.00/MT due to trade tensions between the U.S. and China. But the spike was short-lived and saw a dramatic reversal, after China’s reciprocal tariffs ruled out U.S. propane for Chinese buyers.
The current spike may also have reached a less dramatic end, as price-sensitive petrochemical buyers dial back buying. Expectation that January term allocations by Saudi Aramco will be without delays or cuts is also being factored into prices, resulting in offers for CFR Japan propane cargoes falling to around US$17/MT, down from a peak of US$42/MT on 11 December.
