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Why volatility in propane prices can affect names like Suburban

Kshitija Bhandaru

Must-know: An investor's guide to Suburban Propane Partners (Part 4 of 7)

(Continued from Part 3)

Volatility in propane prices

Colder-than-normal temperatures caused strong propane demand over this winter heating season. The colder temperatures caused propane prices to spike at certain points throughout the winter.

AmeriGas’ (APU) supply contracts typically provide for pricing based upon 1) index formulas using the current prices established at a major storage point such as Mont Belvieu, Texas, or Conway, Kansas, or 2) posted prices at the time of delivery.

In Mont Belvieu propane prices averaged $1.20 a gallon in Q1 or 35% above the prior year. U.S. propane inventories at the end of December were 46 million barrels or 21 million barrels below the same time last year, and 11 million barrels or 19% below the five-year average. Volatility in propane prices continues well into the second quarter (January–March) even as inventories are at historically low levels.

Extreme volatility in propane prices could negatively affect the margins of distributors such as Suburban Propane, as the company may not be able to immediately pass on the cost of more expensive propane to its customers. From many reports, this winter season was especially tough to manage given extreme weather resulting in high demand, spikes in price, and logistical problems getting propane to end customers.

To learn more about how propane prices affect distributors such as AmeriGas Partners (APU), Ferrellgas (FGP), and NGL Partners (NGL), see Summary: The 8 trends that could affect propane names this winter. It is important to note that Suburban Propane is part of the Yorkville High Income MLP ETF (YMLP).

Continue reading the next sections in this series to learn about SPH’s growth strategy and financial trends.


Continue to Part 5

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