At least three Chinese companies are in the final stages of negotiations with three LPG producers in Iran for term supply deals for 2014, industry sources said Thursday.
The deals would mark the first time buyers in China had secured LPG from Iran via annual supply contracts, the sources said.
Some importers have been buying Iranian LPG on a spot basis in recent months after Chinese companies acquired older very large gas carriers, or by using ships time-chartered by Iranian firms, to skirt international sanctions on oil product exports from the Middle Eastern producer.
"They are preparing to lift Iranian LPG. They are going to have high demand and one of their supply sources is Iran," a shipping source familiar with the matter said. "These people have the ships to carry large liftings in Iran in 2014."
A Middle Eastern source said the three Iranian producers involved in the talks were Petrochemical Commercial Co. or PCC, National Iranian Oil Co. or NIOC, and National Iranian Gas Co. or NIGC, while the Chinese companies included Jovo Energy, Guangdong Zhenrong and Zhangjiagang Oriental Energy.
"They are in the final stages of negotiations, or around 70% complete, and the agreements will be completed within the next two months," he said.
The cargoes would comprise 70% propane and 30% butane, with volumes not yet known, he added.
The source said Chinese importers were taking both propane and butane to feed petrochemical plants and to meet growing demand from power utilities.
Chinese sources said Jovo Energy might have already concluded a one-year contract with an Iranian supplier. Under the purported deal, the company will receive one 40,000 mt parcel of LPG each month starting November, 2013, with the cargoes priced on a floating basis, according to the sources.
Jovo recently imported one LPG cargo together with Zhuhai NewOcean, a subsidiary of Hong Kong-listed NewOcean Energy Holdings that sells LPG imported to its terminal in Zhuhai to the domestic market, the sources said.
A VLGC has discharged some tonnes at Zhuhai port and is expected to head to Dongguan this week, sources said. Platts vessel tracking software cFlow showed the cargo from the Persian Gulf was carried on the VLGC Gas Crystal and is now at Dongguan.
Jovo, which has a terminal at Dongguan, denied it had bought Iranian LPG, but confirmed it was expecting an LPG cargo to arrive within two days.
Guangdong Zhenrong, controlled by state-run Zhuhai Zhenrong, is in talks with an Iranian supplier for an LPG term contract, market sources said. A company source with Guangdong Zhenrong said she did not know about the matter.
Zhuhai Zhenrong is also responsible for bringing in part of China's term Iranian crude imports.
Zhangjiagang Oriental Energy denied it was in talks with Iranian suppliers for an LPG term contract. Another East China source said Oriental Energy may use Sinochem as an agent to liaise with Iranian suppliers.
The company is expected to bring in eight VLGCs a year from Iran, according to market sources. Sinochem was not available for comment Thursday.
Oriental Energy is among four Chinese petrochemical producers that are building propane dehydrogenation, or PDH, plants and has sealed term contracts to buy propane from the US.
Market sources said Chinese buyers would not normally import LPG directly from Iran, instead changing port in the Middle East before taking Iranian cargoes into China, they added.
Sources at PCC, Iran's top exporter of petrochemical products, did not respond to Platts queries. CHINA RETURNING TO REGULAR IMPORTS OF IRAN LPG
East Asian shipping sources said companies such as Tianjin Southwest Maritime and Shandong Shipping, which are striving to develop China's fledgling LPG fleet by building new VLGCs or buying older vessels, would possibly provide the carriers needed to ship the cargoes for the three Chinese importers once contracts have been sealed.
Vessels plying the Iran-Asia route since May include the Sam Russ, Gas Beauty, Schumi, Gas Jasmine, Senna Princess, Maple 2 and Gas Crystal, shipping sources said.
Iran could have delivered LPG into China on a regular basis earlier had its tanker companies owned VLGCs, as they do VLCCs for facilitating crude oil shipments, trade sources said earlier.
The country resumed LPG shipments in May, with cargoes bought by South Korean traders, even though an EU ban on propane and butane trade due to its nuclear plans, which had brought the producer's exports to a near halt late last year, remains in force.
Chinese imports of Iranian LPG restarted in June after a one-year break, when it took delivery of 88,000 mt from PCC, and have continued since.
China had been a regular importer of LPG from Iran in past years, but Chinese customs data did not record any imports in 2012 or between January and September this year.
China imported 380,791 mt of LPG in September, data from the General Administration of Customs showed. Buyers normally change ports before taking in cargoes, so departure ports do change, which may be why Iran may not be recorded as a departure port.
Iran's nuclear chief Ali Akbar Salehi was quoted Tuesday on state broadcaster IRIB's website as saying he hoped a deal could be reached on a long-stalled probe into Tehran's suspected atomic arms research when UN nuclear agency head Yukiya Amano visits Tehran November 11.
Iran is showing greater signs of conciliation via diplomacy since moderate President Hassan Rouhani won polls in June after years of escalating tensions with the West.