Analysis: US to Asia LPG spot arbitrage reopens

OREANDA-NEWS. April 03, 2015. The US Gulf coast to Asia Pacific propane arbitrage has reopened, even on a spot basis, as softening of freight caused by vessel availability is coupling with weaker spot cargo prices available in forward months at LPG export terminals near Houston, Texas.

Freight prices for spot VLGC moves between the Mideast Gulf and Asia Pacific have been reduced by \\$21/t month-on-month, and lent weakness to less frequent spot routes, such as the course between Houston and Chiba, Japan. Mideast Gulf to Asia Pacific freight stands at \\$79/t as of 2 April, its weakest level since 21 January. Demand firmed as the first quarter progressed, which brought the freight value to a peak of \\$105/t in mid-February. The benchmark averaged \\$97.20/t throughout the month of February and \\$97.86/t in March.

While tight economics early in the year encouraged LPG traders to play the Panama Canal arbitrage rather than make a direct trip from the Gulf coast to Asia Pacific, traders have moved into the spot freight market in recent sessions to take advantage of buying opportunities in the US.

January and February saw strong spot Asian demand that pulled a large fleet of VLGCs eastward from the US. As those vessels are returning to the Gulf coast, the loosening market is bringing about more attractive freight opportunities for spot traders.

Three VLGCs loading in late April and the first half of May were booked on a Houston to Chiba basis between \\$190/t and low \\$200s/t early this week.

The VLGC British Commerce was heard booked in the low \\$200s/t range to a trader for an LPG cargo pegged to load between 27-28 April at the US Gulf coast. Another VLGC, the Corvette, was heard booked at a similar level for 3-4 May, also to a trader. Finally, the VLGC Berge Nantong was heard fixed to a trader at \\$190/t for an 11-12 May Gulf coast loading.

Just as spot freight began to weaken, fresh opportunities emerged to buy cargo at prices below the common terminaling fee charged by Gulf coast export terminal operators, which is held at 13?/USG.

At least three spot cargoes available to load between late April to mid-May were heard sold between a 5.25-9?/USG discount relative to the Mont Belvieu benchmark. The fresh spot activity emerged as contracted lifters at the Gulf coast chose to sell their product at a discount to the contracted price in order to avoid cargo cancellation fees.

The confluence of cheaper freight and more attractive cargo prices reopened the US Gulf to Asia Pacific arbitrage to \\$235/t on 30 March, the strongest level seen since 12 August 2014. The change allows Asian buyers to make a profit as large as \\$35/t, even while utilizing expense spot freight.