China’s butane imports likely to remain firm in 2H

Butane became the most economic feedstock in May as prices fell, and is expected to remain at significant discounts to naphtha and propane

China's butane imports reached an eight-month high in May following the start-up of a new ethylene cracker and more competitive butane prices compared with propane and naphtha for petrochemical producers. And firmer import demand is likely to sustain into the second half of this year as MTBE demand expands.

Arrivals of butane rose by 43pc on the month and 38pc on the year to 734,200t in May, the second highest on record after the 753,300t intake in September 2022, customs data show. This put the country's imports at 2.46mn t in the first five months of 2023, more than a fifth higher than a year earlier. In China, imported butane is mainly used as a fuel, for gasoline blending and as a petrochemical feedstock. By province, Zhejiang and Shanghai provinces contributed 45pc of the total 219,300t month-on-month increase in butane imports, Guangxi 23pc, Shandong 19pc and Liaoning 10pc.

In the Zhejiang and Shanghai region of east China, Sanjiang Petrochemical's 1mn t/yr mixed-feed ethylene cracker started in May. The company purchased a number of truck cargoes from nearby terminals, an east Chinese LPG importer says. Butane became the most economic feedstock during the month as prices slid, while Sanjiang also has no naphtha import quota for 2023 given the difficulties of obtaining one, making it more likely to buy LPG on the spot market.

The butane Argus Far East Index (AFEI), for large cargoes on a Japan-delivery basis, averaged around $580/t, $513/t and $460/t in April, May and June, respectively. This was about $4/t, $9/t and $33/t lower than the propane AFEI, and $93/t, $79/t, and $79/t lower than the naphtha cfr Japan assessment, respectively. Lower butane prices attracted some crackers and domestic distributors to increase their purchases, with rising arrivals at wholesale terminals in Guangxi and to Bora-LyondellBasell's 1.1mn t/yr ethylene cracker in Liaoning.

In east China's Shandong province, the centre of the gasoline blending sector, the butane import growth was largely driven by an increase in feedstock use for the production of gasoline component MTBE. Beijing's imposition of a consumption tax on iso-octane, or alkylate, in mid-May curbed output of this gasoline component that relies on isobutane and butylene, but this also boosted demand for MTBE as a substitute. And the MTBE export arbitrage to nearby Asian countries reopened from the second half of May, further supporting butane demand.

Butane arrivals in China reached 744,600t in June according to Vortexa, and imports are expected to remain elevated in the coming months as Sanjiang Petrochemical ramps up its new cracker and with butane expected to remain at large discounts to naphtha and propane. Import demand should be supported by healthier cracker use in July-December following maintenance season, while Befar Group's new 740,000 t/yr MTBE plant is due to launchin Shandong in the fourth quarter.

Domestic dearth?

Zhejiang Petroleum and Chemical's (ZPC) 800,000 b/d refinery is also due to cut LPG sales by 60pc in July, as it intends to run its three 1.4mn t/yr crackers at capacity, an east Chinese LPG trader says. ZPC's crackers were in rotating maintenance in the second quarter, so they sold 100,000-120,000 t/month of LPG domestically, with about 80pc of this butane as the propane was consumed at its 600,000 t/yr PDH plant. Hengli Petrochemical's 400,000 b/d refinery may also turn from seller to buyer in the third quarter as it ramps up cracker utilisation to 100pc from 70pc, a market participant says. Hengli sold 5,000-7,000 t/month of butane on the domestic market in the second quarter, and around 26,000-27,000 t/month in the first, they say. In the past, Hengli used to buy 10,000 t/month of butane for feedstock for its petrochemical complex. Befar Group's MTBE plant in Shandong will also start up, which might consume over 60,000 t/month of butane when running at capacity.