The market value of liquefied petroleum gases (LPG), which are used as automobile fuel, has broken an absolute record at the background of a market shortage and a decrease in supply due to the OPEC+ deal. At the same time, wholesale gasoline prices have been growing sharply in Russia. LPG manufacturers believe that prices are unlikely to last long at the current level, noting that the sharp volatility is caused by the lifting of the quarantine restrictions and by the seasonality usual for this product.
The cost of liquefied petroleum gases (Voynovka base-station) at SPIMEX has exceeded 35 thousand rubles per ton since June 10, which is a record high since the index establishment at this platform in January 2019. This level is 36% higher than at the same period of 2019. In early June, the wholesale prices for gasoline, the LPG (propane-butane) compete with in the automobile fuel segment, have also been breaking records.
At the same time, the LPG market is playing back the similar sharp decline in March-April 2020. At that time the LPG market value on this basis fell to 13 thousand per ton, and on other bases - below 10 thousand per ton at the background of quarantine measures imposed due to the coronavirus pandemic, and decline in demand. A source of the Kommersant newspaper in the industry explains that in April, demand for LPG fell drastically, as consumers feared the problems with sales and minimized stocks. At the same time, since the second half of May, when the quarantine measures started to ease, all the market players rushed to buy LPG at the prices that had fallen by that time, to replenish stocks.
According to the Kommersant source, a sharp increase in retail demand caused the effect of a temporary deficit, which, together with the purchase of large amounts by contractors, pushes prices up. At the same time, the market stock-jobbing coincided with the period of preventive repairs at the LPG manufacturing plants.
Representatives of NOVATEK (the LPG production volume is about 800 thousand tons per year), confirmed to Kommersant that in spring, the consumption of LPG as a motor fuel in certain regions decreased by 70-80% due to restrictions imposed as part of the fight against coronavirus. "And given the physical and chemical properties of the product, it is almost impossible to accumulate it, since tank farms have an extremely limited volume. As a result, prices for LPG in April-May fell to negative values at the production sites, and many companies prematurely stopped plants for scheduled repairs", as the source in the company explained to Kommersant. At the moment, they note, there is a recovery in demand, at that there is a local deficit occurred. According to NOVATEK, in the near future, when the plants return to normal operation mode, the market will be balanced.
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Representatives of another major manufacturer - SIBUR - noted that the existing LPG prices development is explained by a low base, since in the spring these same quotes went down to many year lows. At the same time, they note, quotes still remain below the peak values on some bases in 2018-2019. The company explained that since LPG is a clearly seasonal product, the increase in demand for it in late spring and early summer is typical, as it is supported by an increase in the consumption of autogas for the needs of individual consumers. SIBUR noted that it did not reduce the exchange sales of LPG, but have even significantly increased them since early June.
During the period from April 1 to June 30, the Ministry of energy and the Federal Antimonopoly Service halved the LPG mandatory exchange sales ratio for manufacturers (down to 2.5% of production volume). According to Kommersant, this right was exercised by Gazprom structures.
Moreover, in May, SIBUR and NOVATEK received a 40% discount on the LPG transportation by rail in all directions. And such discount will be valid until the end of the year. Yesterday, Kommersant received no response to its request from FAS.
And finally, the shortage of LPG is also caused by general industry-wide reasons — a decrease in gas condensate production by Gazprom at the background of a general 20% decline in gas production, as well as the effect of the OPEC+ deal. Yevgenia Dyshlyuk from Gazprombank notes that LPG is produced from wide liquid hydrocarbons fraction, the production of which could be cut starting from May 1 due to a decrease in oil production. Igor Tyablikov from Rupec notes that normally, in spring, there would have been LPG prices growth, but this year, due to the quarantine measures and decline in demand, from late March to early May, quotes were at the bottom. Now, according to the expert, the price has reached the year record values and in the future certain price fall is forecasted.
Based on the materials: https://www.kommersant.ru/doc/4381134