Worries are deepening for Korea's liquefied petroleum gas (LPG) importers. The expense of importing from overseas has jumped with higher international prices and a stronger dollar, but accumulated losses are growing because they cannot fully reflect price hike factors under the government's price stabilization policy.
According to the LPG industry on the 2nd, Korea's LPG prices in July rose 50 won per kilogram from the previous month. E1 and SK Gas, the country's two major LPG importers, began by raising the gas supply price 25–28 won per kilogram in March, then 50 won in April, 140 won in May, and 30 won in June.
As a result, starting the same day, E1's supply price for household and commercial propane to filling stations rose 50 won from the previous month to 1,483.17 won per kilogram, and the industrial rate rose 50 won to 1,489.77 won. Transport butane, converted, increased 29.2 won from the previous month to 1,044.22 won per liter (ℓ).
SK Gas' supply price for household and commercial propane to filling stations rose 50 won from the previous month to 1,485.73 won per kilogram, and the industrial rate rose 50 won to 1,492.33 won, while transport butane also increased 28.49 won to 1,045.39 won per liter.
Even with continued LPG price hikes, the industry estimates it would need to raise the current price by an additional 350 won per kilogram to avoid losses. They cite higher LPG prices traded in the global market and the rise in the value of the U.S. dollar used for settlement.
Korea's LPG prices for the following month are set based on the international LPG price (CP, Contact Price) that Aramco, Saudi Arabia's state-run oil company, announces at the end of each month.
Before the Middle East crisis, the January CP influencing February prices was $525 per ton for propane and $520 per ton for butane. The June CP was $760 per ton for propane and $820 for butane, jumps of 45% and 58% over six months, respectively.
By contrast, during the same period, domestic supply prices for propane and butane rose only 25% and 16%. In February, LPG prices were in the 1,190-won range per kilogram for household and commercial propane, and vehicle butane was about 902 won per liter.
Companies say the price hike factors amount to several hundred won per kilogram, but the actual increase is capped, leading to growing accumulated losses.
LPG is often called a fuel for ordinary people. Propane is mainly used by small self-employed business owners such as restaurants, and butane consumption is concentrated in taxis and small trucks. When LPG prices rise sharply, people's livelihoods can freeze up, so the government manages prices by asking importers to refrain from raising prices or by presenting reduction measures.
The government recently rolled out a "carrot" to partially ease importers' expense burden. From this month through the end of the year, it applied a quota tariff (a system that applies a tariff rate higher or lower than the basic rate) to LPG, cutting the basic tariff rate of 3% applied to LPG imports to 0%.
The LPG sales levy will also be temporarily exempted as early as next month. Importers have been paying a sales levy of 62.3 won per kilogram based on butane.
LPG importers say that even with the government's carrot, it will be hard to fully resolve the pressure to raise prices. Unlike refiners, which are compensated for losses under the government's petroleum price cap, LPG importers have no comparable loss-compensation measures.
An industry official said, "We have no choice but to set Korea's LPG supply prices while watching the government's reaction," adding, "We have to make up for losses from domestic sales with other businesses such as overseas trading."