Year-end forecast for the North China liquefied gas market

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In the blink of an eye, winter has arrived; last week, many areas in the north saw the first snowfall of this winter, which to some extent indicates that 2015 is coming to an end. So, what are the main factors that will influence the market in North China during the remaining one and a half months, and how will trends develop going forward? Supply decreases, while the ability to support market prices strengthens. Figure 1, by comparing the production figures with those of the same period last year, shows that due to factors such as maintenance work, the supply of raw gas to the main operating units this year was overall lower than in the corresponding period last year. By November, the annual processing and production tasks had been largely completed; there were some adjustments to the volume of production, which reduced the sales pressure. Amidst the weak market conditions for deeply processed products, the company had a strong ability to maintain prices and support the market. The operating rate of deep processing facilities has increased, supporting demand for carbon tetra compounds after ether production. As shown in Figure 2, although gasoline demand has entered a low season since winter began, the operating rate of deep processing facilities has increased to some extent. These facilities are mainly located in Shandong and Puyang; both regions have a certain demand for raw materials used in North China, which in turn helps to sustain the conditions in the raw material market. The oil blending market is performing poorly, resulting in reduced profits for companies engaged in deep processing. As shown in Figure 3, on the one hand, demand for gasoline is low during winter, and on the other hand, continuous drops in crude oil prices affect market sentiment. Meanwhile, high raw material prices due to low production levels mean that the profitability of deep processing facilities is generally poor. For the alkylation units with better economic performance, since November, their profits have remained around the break-even point, and recently they have even turned negative. The profitability of units such as isobutane dehydrogenation is also poor. Rising costs of imported propane are driving up prices for household gas. Aramco’s optimistic outlook regarding the demand for propylene and butane from ethylene cracking units in the Far East market during winter has pushed up CP prices in November, with import costs rising accordingly. Since the onset of winter, the imported propane supplied by Tianjin Bohua has gained favor among some industry players. Its large supply volume has also had an impact on the shipping conditions of manufacturers in the surrounding area. The increase in the cost of imported propane has reduced its cost advantage, yet it still exerts a certain supporting effect on both household gas prices and propane prices. (But due to the continuous decline in crude oil prices, there have been clear signs of a reduction in the cost of imported goods recently; however, these costs are still higher compared to those in previous months.) The likelihood of extreme weather affecting transportation is increasing. As winter approaches, the chances of heavy snowfall in the north are rising, and the speed restrictions on highways in Shandong remain in place, which will also hinder the liquefied gas market. Year-end forecast: Regarding feed gas, although the reduction in production in its core business has eased sales pressure, the oil blending market is expected to remain in a weak state in the near future with little possibility of improvement. Plants have limited capacity to absorb rising feed gas costs, so it is anticipated that there will be a certain degree of decrease in the price of feed gas by the end of the year. In the civilian sector, demand and import costs provide some support; prices are likely to remain stable in the short term, but in the medium term it will still be necessary to consider the trends in raw material prices.