Asian Refiners Prefer LPG Over Naphtha Owing to Poor Profit Margins

Liquified Petroleum Gas (LPG) prices continue to linger at significant discounts to Naphtha in several Asian countries. Therefore several Asian petrochemical producers, especially in South Korea, have begun to switch to propane as steam cracker feedstock in an effort to boost yields and margins that have remained subpar over the previous two years.

North Asian petrochemical firms decided against using LPG as a replacement in May 2022 when the pricing scenarios were similar to the current conditions, even when LPG was at such huge discounts due to the low cost of Ethylene, the principal yield from breaking LPG. During the summer, when run rates were low to reduce operating losses, Naphtha-fed steam crackers were looking for a desirable component for blending Gasoline.

The acceptance of Qatar Petroleum's nominations for cargo for loading in April 2023 is anticipated to result in a sufficient supply of LPG with only minimal delays to Asian markets. Iran continued to send robust shipments, most of which were intended for China. Saudi shipments were seen returning to normal after Yanbu terminal maintenance in late January 2023 to early March 2023 was rectified, improving supply rates. Finally, consistent US flows to Asia kept CFR North Asian Propane at about two-month lows on March 8.

Even though Naphtha prices continued to be higher than LPG, the regional market for the commodity is still struggling due to increased Middle Eastern and Indian supplies and low Olefin production margins. Likewise, the number of prompt [sell] tenders has increased. Demand for Naphtha has not increased. Right now, the issue supplies. This occurred when the C+F Japan Naphtha reached a seven-month high on March 6 as a result of a lack of supply.

According to ChemAnalyst, the easing LPG and rising Naphtha pricing trends in the Asian markets are likely to continue for the rest of this month. The pricing trend for both these commodities will depend upon the number of refineries that will switch from Naphtha to LPG, as few refineries are steadfast in not making the switch since their primary output preference is Propylene.