A forecast of Chinese LPG demand for this year is being lowered by over 2 million tonnes in the wake of the fallout from the novel coronavirus (Covid-19) impacting the LPG carriers shipping cargoes in and out of the country.

In a briefing note broker and consultant Poten & Partners said the virus is having “a significant effect” on the Chinese LPG market which is expected to decrease LPG demand by 3% for the year on the outfit’s previous forecast from a month ago.

For 2020, Chinese LPG demand is expected to reach 62.5 mt, a drop of 2.1 mt on Poten’s previous forecasts, while imports will slide 1.6 mt to 24.7 mt for the year.

Poten attributes the fall to lower operating rates at propane dehydrogenation (PDH) plants and declining demand from the residential and commercial sectors, but it said these are both expected to recover in the second quarter.

“The shipping market may also see impacts due to extended voyages, quarantine requirements and other compliance issues,” the broker said. “If cargoes are deferred or delayed going into China, it may temporarily tighten the shipping market.”

But Poten said that extended decreases in demand from China could also create length in the LPG shipping market.

The VLGC Pacific Yantai has been delayed. Photo: V.Tonic/MarineTraffic

Poten reported that the 84,000-cbm Pacific Yantai (built 2016), which arrived from the Middle East, was held up for four days before it was allowed to berth at Ningbo, China, even after it passed the 14-day virus quarantine threshold, as one crew member was showing coronavirus symptoms but later tested negative.

Cases like this raise the question of which party will bear the costs of such delays going forward, the broker said.

Running the numbers, Poten said it expects an 11% fall in Chinese LPG production for February from levels seen the previous month as refiners respond to an expected demand drop up to 15%. On the back of this, the broker forecast that LPG imports will fall 27% this month.

Despite the falls, Poten said demand and imports will likely be up on 2019’s totals due to the planned start-up of four new PDH plants this year, assuming the virus outbreak is not prolonged. However, it expects the start of operations at all four new plants will be delayed.

Poten said some PDH plants are lowering operating rates. Others are delaying restarts following scheduled maintenance.

The broker detailed that major LPG importers are in the market trying to resell their cargoes, with some requesting cargo deferrals. But it said: “As of now, no Chinese buyers of LPG have declared force majeure due to coronavirus.”

“The market should recover moving into the summer as health experts suggest the spread of these types of viruses subside in warmer temperatures,” it added. “Until then, there will be a sharp drop in LPG demand and imports.”