LPG Price Performs Well Supported by Industrial Demand
Preamble: In recent years, the increasing LPG industrial use has exerted more significant impacts on China’s LPG import volume and the international LPG market prices. The profit of the PDH unit has affected the international propane pricing.
In recent years, the increasing LPG industrial use has exerted more significant impacts on the international and China’s LPG market, especially on the propane market.
In January 2024, both international and China’s LPG market prices saw further losses due to weak cost support, ample commercial volume at refineries, low PDH unit operating rate, and the approaching of the Spring Festival. In February 2024, the market gradually changed after the Spring Festival holiday. Historically, due to the transfer of the civil-use market from the peak season to the slack season, the market usually fluctuated. In the long run, the market would enter the decline channel in the first half of the year.
However, China’s LPG market prices fluctuated upward in H1, 2024 after falling in January due to the increasing LPG industrial use.
After the Spring Festival, China’s PDH unit operating rate saw gradual rises due to the PDH unit restarts and reached above 75% in May while hovering at 75%-80% from May to July. Combined with the capacity increase, both lifted the international propane demand. In addition, the naphtha price was still higher, though the price difference between the naphtha and LPG shrunk to about $50/mt. Some ethylene plants adopted more LPG resources as cracking feedstock from H2 February, and the LPG import volume at some ethylene plants went up, lifting the international propane demand and offsetting impacts of civil-use gas consumption slack season.
Those mentioned above can also be revealed by the changes in LPG import volume and prices of propylene and propane. With the increasing PDH capacity, especially with the capacity exceeding 20,000kt/a in 2024, the PDH unit operating rate exerted a more significant impact on China’s LPG import volume. In addition, China’s PDH unit operating rate was subject to profit change more than the unit overhauls due to the overall mediocre profit. Thus, the profit change exerted a direct impact on the import volume. The import volume changes in Q4, 2023 and Q2, 2024 aligned with the changes in PDH unit profitability, and the influence of the seasonal fluctuations was weakened or even eliminated.
The correlation between propylene prices and propane CFR China also increased significantly, especially after the profit deterioration of PDH units.
With the PDH and ethylene capacity increasing, those trends mentioned above may continue. The seasonal fluctuations may be weakened or even eliminated, while players may stock up in the traditional slack season, such as Q2, and the profits and operating rates at PDH enterprises may face notable challenges in Q4.
What’s more, the growth of PDH capacity in China may slow down significantly after 2025, and some ethylene enterprises are currently seeking to replace part of the LPG or naphtha with ethane. At that time, the impact of the industrial demand on the LPG market may undergo certain changes.
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