Asia Sees Weak LPG Buying Demand Despite Price Drop
Competition from naphtha, tariff uncertainty and sluggish demand from major importing countries have contributed to weak buying interest in Asia’s LPG market despite a sharp price drop following the Israel-Iran ceasefire, market sources said.
Prices declined as the ceasefire on June 23 eased concerns over potential supply disruptions and reduced geopolitical risk premiums, traders noted. The CFR Japan propane flat price — the reference price for Asia’s LPG — fell by $35 per metric ton on the day to close at $557/mt on June 24, according to OPIS assessments. Prices have continued to slide since the ceasefire, averaging $532/mt so far this week as of Wednesday.
Market participants initially anticipated a recovery in buying interest following the price decline, particularly with reduced risks of disruptions to LPG flows through the Strait of Hormuz. Expectations were also supported by the return of several flexible crackers and propane dehydrogenation or PDH units from maintenance across the region.
However, spot demand has been lackluster, with only four spot tenders issued for July and August delivery cargoes since the ceasefire. Analysts attribute the muted buying to a shift in feedstock preference, with flexible crackers leaning toward naphtha amid a narrowing spread between the Far East LPG quotes and Japan naphtha prices. As a result, naphtha demand has firmed while LPG interest has softened.
“Crackers generally favor naphtha as the default feedstock, as it yields a broader range of petrochemical products than LPG. Beyond ethylene, propylene and butadiene, naphtha can also produce aromatics such as benzene and toluene,” said a Singapore-based analyst.
“That’s why LPG must be priced significantly lower than naphtha — typically when the Far East quotes-to-Japan naphtha spread exceeds minus $50/mt — for it to be economically viable for crackers to switch,” the analyst added.
However, OPIS assessments show the spread has been narrowing since the ceasefire and moving away from the typical switching threshold, closing at minus $33.66/mt on Wednesday.
“Both LPG and naphtha prices declined following the ceasefire, but naphtha fell more sharply. As a result, LPG no longer holds a clear cost advantage over naphtha, leaving little economic incentive for crackers to switch,” a second analyst explained.
Sources note that demand from major importers in Asia, such as India and China, also remains weak.
In India, the arrival of the monsoon season in June — typically lasting through September — has curbed residential and commercial LPG consumption, sources noted.
“During the monsoon season, people generally stay indoors more and dine out less, which leads to a slowdown in social activity. As a result, restaurants see fewer customers and consume less LPG for cooking,” an Indian source said. “This seasonal dip in demand is typical, and Indian LPG consumption is only expected to pick up again toward the end of the year during the festive season.”
Chinese PDH operators are similarly cautious, with many holding back from purchasing U.S.-origin cargoes amid lingering uncertainty over whether tariffs will be reinstated. Most buyers are opting to wait out the current 90-day tariff suspension before committing to new purchases, OPIS reported earlier. Even demand for non-U.S. LPG remains soft, with PDH operators struggling even more now with poor margins — an outcome of the U.S.-China trade war’s peak when tariff rates soared above 100%, according to analysts.
Market participants noted that PDH margins remain under pressure across the region, not just in China. A South Korean source said domestic units such as SK Advanced’s 600,000 mt/year facility and Hyosung Corp’s 400,000 mt/year plant have reduced operating rates, while Taekwang Industrial’s 300,000 mt/year unit remains offline for maintenance.
“LPG buying activity is unlikely to pick up in the near term — most of the action is on the naphtha side. For now, the market is pinning hopes on greater clarity after the 90-day tariff pause. If both China and the U.S. agree to lift tariffs, activity may finally begin to recover,” a second analyst said.
–Reporting by Cheryl Lee, clee@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com