Week 61: LPG Insider Report

Prices on domestic markets for LPG were relatively reduced in the immediately preceding week, while it fluctuated in the international market.

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Week 61: LPG Insider Report


Prices on domestic markets for LPG were relatively reduced in the immediately preceding week, while it fluctuated in the international market.
 

  • The international prices of LPG fluctuated throughout the week but ended on a fallen note.

  • Depot prices have shown some depreciation compared to the previous week.

  • The narrowing of the price disparities between prices at the level of the depot and those at the international level is consistent.

  • In the week under review and the previous two weeks, price variations in LPG per kg remained within a narrow range.

  • Within the region, regional variations in LPG retail prices continue to exist.

     

     

     

    A frequent feature of the Nigerian LPG market has been the regional variance in the price of LPG across the country. Due to its close proximity to the coastal region, the South West region has the lowest rates.

     

     

     

    • Inflation Rate and the LPG: Over the last 11 months, the rate of inflation has been steadily increasing. In December, the rate of inflation increased to 15.75 percent from 14.89 percent in November 2020, and the expected rate of inflation in January 2021 is 14.96 percent (Fig D). The composite food index increased to 19.56 percent in December from 18.3 percent in November, 17.38 percent in October, 16.16 percent in September, and 16.0 percent in August, and to 15.48 percent in July 2020 from 15.18 percent in June 2020. The killing and kidnapping of farmers and businessmen, as well as the outbreak of the Covid-19 pandemic, are some causes of the rising trend. The implication is that inflation depreciates the value of naira. This reduces purchasing power of money used to buy LPG.

     

    • Exchange Rate and the LPG: Exchange value, as pegged by the Central Bank of Nigeria (CBN) (Figure E), is still persistent at N380 to US$1 throughout the week as discrepancies continue to expand in the parallel market. One of the factors deciding the price of LPG in the foreign market is the exchange rate. As greater amounts of LPG are imported, a lower exchange rate would not raise the selling price of LPG on the local market. This means the LPG sector is growing.

     

    • Crude oil Price and the LPG: The price of LPG is positively related to the price of crude oil since it is a by-product of crude oil. The Prices of crude oil in the international market continue to rise in the beginning of the week under review before it started falling towards the end of the week. (Figure F). The cost of LPG increases as the price of crude oil rises on the international market. This suggests a strong LPG market price.

     

    • Foreign Reserves: As in the previous week, despite the devaluation and pegging of the Naira at N380 to US$1, the Nigerian gross Foreign Reserve continues to fall from $35.5 billion to $35.2 billion. This will signal to the forex market that there is imminent further devaluation to assist support the naira.

     

    • PMI: The CBN Purchasing Managers Index (PMI) recorded overall growth in employment, business and inventory in the month of December while ordering in the category of supply for power, gas, steam and air conditioning remained stagnant while business operation & inventory were static in the same month at 45.7 per cent.


 

 

 

 

  • Food Blockage to Southern Nigeria: Foodstuff and livestock traders from the Northern Nigeria have begun to transfer their products and consumables to the neighbouring Nigerian and Cameroon countries. They've also started blocking trade routes to the south by preventing trucks carrying food from heading south. This will cause scarcity of food and rise in food price in the southern Nigeria and demand in the LPG will fall.

 

  • Covid-19: Nigeria is presently experiencing a second wave of the Covid-19 pandemic. This has made some state government in to ban a gathering of people that is more than 20. Covid-19 causes demand of goods and services to fall due to the full or partial lock-down effect. The implication of the Covid-19 contracts the LPG market

     

    • In order to avoid scarcity of food in the southern Nigeria, the Federal Government should intervene to unblock the road that leads to the south and secure the life of farmers against the herdsmen in the south. Farming projects should be funded and monitored to increase the volume of food production in the country. This will bring down the prices of the food items. When the food items are cheaper, the household consumption of the LPG will increase.

     

    • To curb the spread of the Covid-19, protective kits and an approved vaccine should be available to all and sundry and establish programs that will keep people aware of the pandemic

       

       

      The prices in the weeks to come may rise due to increase in in the price of crude oil

       

       

      The Nigerian LPG Market is the next success story of the Global LPG industry, if you need a partner with a global perspective and local expertise in the Nigerian and African space, kindly book for a free session with our team of experts to help you http://www.kiakiagas.com/book-session or write us an email at advisory@kiakiagas.com or Whatsapp: +2348085269328

 

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