OREANDA-NEWS. LPG demand growth is poised to remain strong in Asia-Pacific in 2017 — but possibly not strong enough to absorb enough all the inflows of arbitrage supplies into the market.

Major northeast Asian importers are increasingly looking to US LPG exports to bolster existing supply deals from the Middle East and support growing consumption in the petrochemical sector.

The largest driver of petrochemicals demand comes from China's high-profile investments in propane dehydrogenation (PDH) capacity. Eight PDH units came on stream in the three years to December. Propylene capacity at these plants totalled 4.61mn t, indicating an estimated 5.53mn t/yr of propane will be needed to sustain full operations.

Two more projects are scheduled to come on line in 2017, continuing to support Chinese LPG demand. Dongming Petrochemical's mixed-feed dehydrogenation (MDH) plant with 100,000 t/yr of propylene and 350,000 t/yr of MTBE capacity will start in April, while Fujian Meide's 660,000 t/yr PDH plant is due on stream by the end of the year.

China's PDH expansion has not come without difficulties, as the plants have been hit by frequent, unexpected technical issues. But China's strong appetite for imported LPG is showing no signs of abating, as domestic production continues to fall short of requirements.

The surge in imports has been underpinned by deliveries to east China, which rose sharply by 56pc from a year earlier to 6.32mn t in January-October. Most Chinese PDH plants are located in the east of the country. China's total import volumes in the first 10 months of 2016 rose by 8.3pc compared with the same period a year earlier to 13.1mn t.

Strong petrochemical demand has similarly boosted South Korea's LPG imports, which rose by 30.4pc on the year to 5.7mn t in January-October. LPG consumption in the country's industrial sector rose by a sharp 72.3pc to 485,000t in the same comparison, data from state-owned oil firm KNOC show.

South Korea added its third PDH plant in March, raising the country's PDH capacity from 500,000 t/yr to 1.1mn t/yr. The total implies that about 1.32mn t/yr of propane is needed as feedstock.

Elsewhere in the region, plans by Japan's state-owned energy agency Jogmec to increase its mandatory stock levels by March 2017 have offset a dip in domestic consumption. Japanese LPG imports edged up by nearly 2pc on the year to 8.9mn t in January-October, while consumption slipped by 1.5pc to 10.8mn t in the same comparison.

But the addition of new PDH capacity in the region has been insufficient to shrug off a supply glut, which has weighed heavily on spot differentials on a delivered Japan basis. The benchmark Argus Far East Index (AFEI) has weakened sharply against crude, with the propane AFEI averaging just 61pc of crude so far in 2016, down from 71pc a year earlier.