Japan's Tepco does not plan to buy LPG in Dec on high prices, says source

2013-12-04

Japan's Tokyo Electric Power Company bought around 100,000 mt of LPG in November -- down 17% from 120,000 mt initially projected for the month -- and does not plan to buy for December, due to high prices, a source close to the matter told Platts Tuesday.

Tepco used around 70,000 mt of LPG in November, down 30% from 100,000 mt planned earlier, the source said.

The utility currently does not intend to buy LPG in December as it reevaluates its demand-supply position, although it had initially planned to buy for month to meet winter demand, the source added.

Instead, Tepco is now looking to use its LNG and oil stocks for December. It could still buy some LPG if demand spikes and only if it is necessary, the source added.

If Tepco does not buy LPG in December, it would halt a buying spree seen since June this year.

Regional LPG prices were estimated to have jumped in November by almost 30% month on month for December-delivery cargoes to a record high for butane and around 20-month peaks for propane, following a rally seen since early October, Platts data showed.

The price of propane cargoes for delivery along the key Singapore-Japan route was assessed last Friday at $1,166/mt, the highest since March 20, 2012, when it touched $1,172/mt, Platts data showed. Butane was assessed up $3/mt over the same period at a record high $1,291/mt.

Though propane retreated Monday to $1,119/mt and butane to $1,244/mt, traders said this would be a brief dip as the North Asian winter is expected to be chilly.

Major producer Saudi Aramco last week set its December Contract Price for propane at $1,100/mt, up $225/mt from its November CP and the second highest on record, Platts data showed. Its December butane CP was set at $1,225/mt, up $310/mt month on month, and the highest on record.

Tepco has four propane storage tanks at its Anegasaki plant, comprising two 45,000 kl (45,000 cubic meter) tanks and two 60,000 kl tanks. It also has four 40,000 kl butane storage tanks at Anegasaki.

In December, Tepco plans to buy around 600,000 kiloliters (122,000 b/d) of crude and fuel oil, up 33% from 450,000 kl bought in November, the source said.

Tepco used 350,000 kl (73,000 b/d) of crude and fuel oil in November, down 13% from 400,000 kl planned earlier for the month, the source said.

Tepco's total power demand in November was estimated to be down 1-2% from a year earlier, and its demand for thermal power generation was lower than it had planned for, the source said.

Japan's winter power demand season typically spans December-March, when lower temperatures have a direct impact on crude oil, fuel oil, LPG and LNG consumption for thermal power generation. Japan currently does not have any nuclear reactors in operation.

WINTER INVENTORIES

The Asian LPG market has been rising since early October as strong regional demand outpaced supply from the Middle East due to production and loading disruptions, as well as cuts in term allocations.

The anticipated increase in LPG spot supplies from the US to help meet Asian demand had also not been realized until lately, as US cargoes were diverted to Europe and then to Brazil, Ecuador and Chile, traders said.

Last winter, Japanese traders and importers resorted to drawing down LPG stockpiles, especially as the market was in a backwardated structure, which made imports costly.

On Monday, the spread between the front month and February propane Contract Price swaps widened to plus $56/mt from plus $50/mt last Friday, indicating a much costlier prompt month versus the forward month.

"Well if the East can hold off buying and have enough stocks, then we could indeed see the bulls stopped," one Western trade source said. "US and Europe, however, feel [stronger] with cold weather coming."

As of end-October, Japan's LPG stocks rose 4% month on month to 2.23 million mt, rising for five months in a row, as imports had continued to increase after the summer heatwave and ahead of winter, data from the Japan LP Gas Association showed.

But at the end-October, inventories were down 5.9% from the year-ago level of 2.37 million mt, the data showed.

Import terminal running stocks -- supplies refiners or importers can draw on -- rose in October by 27.6% month on month to 467,000 mt, but compared with the year-ago period, stocks were down 22.2%, the data showed.

Source from : Platts

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