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NGLs Week is PetroChem Wire's comprehensive summary of price trends, upstream and downstream costs, operations news and supply/demand forecasts. The report contains everything you'll need to understand what's happening in the NGL markets.

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NGL 1H review: Propane prices stay higher than last year amid exports

HOUSTON, July 18, 2018 (PCW) -- Spot propane prices have declined during the first half of this year, but are averaging nearly 29% higher than the same time a year ago. LST propane ended Jun at 93.625 cpg, down from 98.75 cpg on Jan 2, a 5.125 cpg (5.2%) downtick.

Over the first six months of this year, propane has averaged 85.76 cpg, compared to 66.72 cpg in 1H 2017. While propane typically endures a seasonal slump in second quarter of the year, due to declining heating demand both in the US and on a global scale, the continued softness points to additional challenges brought about by the attempts to maintain record export levels.

Since last year, propane exports have been averaging about the 1 million b/d on a fairly consistent basis. Exports are now propane’s primary demand source, as opposed to domestic heating and petchems cracking demand. These feverish levels of exports have drawn down domestic inventory levels to historic lows.

Stockpiles are now 10% lower than the five-year average, EIA data shows.

Similar to last year, this has put a fear factor into the market. But countering this is a significant bear position based on the premise that US propane prices have to consistently be attractive (i.e. well below contract prices and global propane values) to maintain a high level of exports.

Export data for the year to date shows that cargo liftings have been affected by the relatively higher prices so far. From Jan-Apr, propane exports averaged 924,250 b/d, compared with 968,500 b/d in Jan-Apr 2017, a 4.6% decrease. Should exports continue to diminish, propane prices could then be made more vulnerable to the supply side of the equation. Propane production hit a record high of 1.35 million b/d in Apr, according to EIA data.

Going into 2H, one of the main concerns is the possible tariff hikes on US LPG exports to China from the current 1% to 25%. Such a move could severely impact term contracts and upend trade flows.

With the first salvo of the US-China trade war fired last week, the market now awaits whether a second round of tariff hikes -– this time including crude, LPG and refined products -– will occur, and when that would take place.

Sources remained divided, with some describing the extension of increased tariffs to other products as political bluster. Meanwhile, several traders were already scurrying to lock down Aug cargo pricing, and still others were heavily trading Aug paper to manage their risk. -- Samantha Hartke

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