Asian physical butane under downward pressure from oversupply

Singapore (Platts)--12 Sep 2017 436 am EDT/836 GMT

The Asian physical butane price is under pressure from rare exports from the US and Nigeria boosting supply, traders said.

On Friday the price came in below that of propane for the first time since March 30 2015 and butane remained at a discount Monday, being assessed at $526.50/mt CFR Japan, while propane was at $527.50/mt.

"Butane is not being pursued aggressively in the market as there is ample supply in Asia," a trader said.

In the October contract price swaps market, propane was at a $7/mt discount to butane Monday, according to S&P Global Platts data.

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The physical propane-butane spread in Asia averaged a $42/mt discount for propane year to date, Platts data showed.

Further adding pressure to the market, Chinese LPG importer Wanhua offered a 23,000 mt butane cargo in the spot market Friday for first-half October delivery at October CP plus $22/mt, equivalent to $540/mt.

"Butane is surplus for now, demand is fairly stable but supply is more," a source from Wanhua said.

The US exported more butane to Asia in August for September delivery due to butane East-West arbitrage window opening, traders said. Saudi Aramco had set the August contract price propane-butane spread at minus $40/mt, whereas the Mount Belvieu non-LST propane-butane spread was minus $16/mt on August 1.

Due to the arbitrage opportunity US exporters changed their cargo composition from 44,000 mt propane cargoes to evenly split 22,000 mt propane and 22,000 mt butane cargoes. An oil major exported eight evenly split propane and butane cargoes to Asia during August, market sources said.

Adding to the butane supply in Asia, Nigeria exported a few cargoes of butane to Asia for September delivery, traders said. Nigeria usually exports LPG to Europe and not to Asia, market sources said.

In addition to a bearish butane market in Asia, high propane prices have also caused the propane-butane spread to flip. Propane prices have risen $22/mt in September on supply concerns due to a tight spot market in the Middle East and supply disruptions from the US because of hurricane Harvey.

Further pushing up the prices, Indian buyers are emerging to buy propane before the onset of North Asian winter.

On Friday, India's IOC bought evenly split propane and butane cargoes via its first LPG term tender; eight VLCG cargoes of 45,000 mt each, and 12 MGC cargoes of 20,000 mt each for delivery over 2018.

Chinese propane dehydrogenation plants are increasing propane demand as they return back from maintenance, increasing their operating rate from 73% in July to 81% in August, S&P Global Platts data showed.

With the propane-butane swap spread at minus $10/mt Friday, traders are expecting the October Saudi contract price propane-butane spread to be narrower than that for September, which was set at minus $20/mt.

"Plenty of butane around, should be interesting to see what Saudi does for October CP," a trader said. The October Saudi contract price propane-butane spread under the current market conditions is expected to be at minus $10/mt, traders said.

--Srijan Kanoi,
--Edited by Jonathan Dart,

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