Limited boost from CP; domestic gas still has a long way to go

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The volume of liquefied gas imported into the country continues to rise rapidly. Although there is an increase in demand for propane due to the commissioning of numerous PDH plants in the country, the amount of imported gas supplied to domestic consumers and ordinary industrial users is also increasing significantly. The market share held by domestically produced gas is being eroded by these imported products. Taking the Shandong region as an example, at the end of October, several major importers in East China sent ships to Shandong frequently. The imported goods that reached this region were sent either to the end-market or, in part, to processing facilities for further production. In November, CP prices rose sharply, rebounding almost simultaneously with international crude oil, which in turn drove up the domestic liquefied gas market significantly. However, due to various factors, last weekend (November 6), the major domestic refineries all saw price declines across different regions, putting significant pressure on local refineries that made it difficult for them to resist the downward trend. If we had forgotten about this sharp rise in butane CP prices, we might have become accustomed to this pattern of fluctuations. But it is precisely this that raises the question: since the underlying conditions have changed, why is domestic gas still experiencing volatility? Starting from the third quarter of 2014, the prices of imported products declined steadily along with international crude oil prices, and this downward trend continued until the third quarter of 2015. In the fourth quarter of that year, thanks to an improvement in demand in the Northern Hemisphere and a temporary slowdown in the decline of international crude oil prices, which reduced pressure on international liquefied gas prices, CP prices saw significant increases in October and November. The volume of domestically imported gases has increased to the order of 1 million tons per month. In the import-heavy regions of East China and South China, the power to set market prices is increasingly shifting in favor of importers, a trend that is particularly evident in South China. Unlike the impact from imports from the south, which is dominated by volume considerations, the north is more affected by price and quality issues. Tianjin Bohua has been transporting propane to Shandong and the Northeast via road transport for some time now, while another major importer in the north, Yantai Wanhua, also plans to integrate supply and sales; it has already held negotiations with several manufacturers in Shandong. Although the \"claws\" of imported gas have reached the Shandong market, whether it will be possible to have a say in gas supply, just like in East and South China, may depend on the availability of storage tanks. At present, the foreign trade gas supplies that reach Shandong are mainly delivered in small pressure vessels. According to people from refineries, if one vessel’s cargo cannot fit into a single tank, it is easy to experience delays, resulting in high demurrage fees. In reality, Shandong is home to many advanced processing facilities, and a large amount of low-cost C4 resources from other regions have already filled up the available storage tanks; therefore, storage capacity could well become a constraint on the influx of imported gas. 　　At present, imported gas in the Shandong region struggles to compete with domestic gas for dominance in the market; moreover, the impact of CP on the prices of domestic gas in Shandong is limited. There are two reasons behind the decline in the prices of domestic household gas. Firstly, there is the impact of reduced demand; currently, multiple isobutane dehydrogenation units in Shandong, including those on Debao Road, are operating at reduced capacity, and some manufacturers can only operate their facilities up to the separation unit level. The industrial demand in the domestic gas market, which is usually the most stable, has changed significantly compared to earlier periods. Furthermore, due to the insufficient price difference between oil and gas, the profitability of deep-processing facilities is low; as a result, alkylation plants such as Qingdao Ruifengyuan and Weifang Gaomi Yonghui decided to shut down for maintenance at this time in order to reduce risks. This led to a decline in the production of high-purity gas, with output dropping significantly. 　　A simultaneous decline in demand and supply makes it difficult for prices to rebound significantly. However, as the cost of production rises, the refineries in East China, which are located close to Shandong, have a strong inclination to support prices, keeping them high over the long term. A price difference of over 300 yuan per ton creates favorable conditions for local processing manufacturers, especially those situated near northern Jiangsu, to sell their products. Manufacturers in southwestern Shandong have reported that there is a shortage of liquefied gas available. The competition between imported and domestic products is becoming increasingly fierce. In the struggle for market share, price is a key factor in attracting customers and expanding sales volume and scope. Using price as the basis for market development, while stabilizing its existing sales areas and downstream customers, it expands into markets outside those areas; imported resources are circulated in large quantities across different regions, and the increase in volume helps to compensate for the decline in profit per ton for imported goods. Furthermore, with the refinement of the sales network and the sales model in which primary suppliers supply products directly to end-users, suppliers will increasingly lower their requirements regarding the size of their customer base in order to ensure an increase in their total customer count. Under such competitive conditions, periodic book losses will not have a significant impact on large import companies and major domestic refineries. However, medium-sized and smaller traders and intermediaries are likely to face increasing pressure.