Asia’s LPG Cracking to Rise in September Despite Trade Tensions: OPIS Poll
Asia’s flexible crackers are set to increase LPG cracking volumes in September, driven by lower prices and ample regional supply, despite renewed trade tensions sparked by new U.S. tariffs across multiple countries, according to the latest monthly OPIS cracking survey.
Crackers capable of processing both naphtha and LPG plan to crack 469,800 metric tons of LPG in September, up from a revised August plan of 437,800 mt. This includes 309,000 mt of propane and 160,800 mt of butane, compared to 293,000 mt and 144,800 mt, respectively, in August.
The August plan was revised upward from an earlier forecast of 391,800 mt. Actual LPG cracking in July stood at 446,000 mt, slightly below the initial planned volume of 451,000 mt.
Northeast Asia naphtha cracking cash margins were negative, at minus $139/mt in the week ending July 24, versus minus $174/mt a week earlier, according to Chemical Market Analytics by OPIS.
The CFR Japan naphtha averaged $579.95/mt in July, down from $589.80/mt in June, while the CFR Japan propane averaged $523/mt in July, falling from $553/mt in May, OPIS data shows.
Falling Prices Widen LPG-Naphtha Price Spread
Analysts attribute the rise in planned September cracking volumes to the recent drop in LPG prices, which could encourage operators to secure forward cargoes while prices remain attractive. LPG prices began declining in July amid bearish sentiments linked to expectations of weaker demand as the U.S. tariff deadline approached.
OPIS assessments show the CFR Japan flat price — the reference price for Asia LPG — fell to $511/mt in the second half of July from $536/mt in the first half.
This has widened the price gap between LPG and naphtha, making LPG a more economically attractive feedstock. The Far East to Japan naphtha price spread, which hovered at around minus $30/mt in early July, has widened to an average of minus $50.93/mt for September cargoes as of Tuesday — surpassing the minus $50/mt tipping point where LPG becomes more cost-effective than naphtha for cracking.
“Prices for August deliveries have also remained low, tracking crude oil declines and ongoing bearishness in the market. This could prompt more cracker operators to secure September cargoes,” said a cracker operator.
The increase in August cracking volumes compared to earlier forecasts has also been attributed to a buying spree in mid-July, when operators took advantage of falling prices to secure cargoes.
OPIS data recorded 11 buy tenders issued in July for August delivery, mainly from flexible crackers such as Formosa Petrochemical and Hanwha TotalEnergies Petrochemical.
Abundant Regional Supply Supports Volumes
The increase in planned cracking volumes has also been supported by abundant regional LPG supply, driven by steady inflows from the U.S. and growing availability from the Middle East.
“A supply surplus from the Middle East now extends across Asia due to weaker demand from India during the monsoon season and slower restocking from China. This could open additional supply options for Asian crackers,” said a Singapore-based analyst.
“Prices for Middle Eastern cargoes have dropped significantly because of soft demand. There’s a strong chance more crackers will consider Middle East LPG,” the analyst added.
Another operator noted: “Having alternative supply sources is beneficial for us. If trade tensions persist, demand for U.S. cargoes could decline, increasing interest in procuring Middle East LPG cargoes.”
OPIS data show the price spread between U.S. origin cargoes and Middle Eastern cargoes — the Far East quotes to contract price spread — narrowed from the minus $20s/mt range in early July to close at minus $5/mt for September on Tuesday.
Renewed Tariff Uncertainties Could Limit Actual Cracking
Despite the increase in planned LPG cracking in September, market participants caution that actual volumes will likely fall short due to ongoing tariff uncertainties as the U.S. implements new tariffs and trade talks continue.
Sources say the market has been quiet since the start of August, with many buyers taking a cautious wait-and-see approach amid the uncertainty. OPIS tracked no new buy tenders in August so far, with only two South Korean tenders issued in late July for September deliveries.
One survey respondent said that although cracking plans for September are high, many operators have yet to secure cargoes amid concerns that escalating trade tensions could disrupt LPG flows.
As of Aug. 5, spot CFR Japan naphtha was assessed at $584/mt, up from $579/mt a month before, while the CFR Japan LPG price was assessed at $504/mt, lower than $529/mt a month before, OPIS data shows.
Spot ethylene prices in Northeast Asia were assessed at $800-$830/mt for CFR Northeast Asia as of July 31, unchanged from one week before, based on CMA data.
Methodology: OPIS, a Dow Jones company, collects Asia-based petrochemical companies’ feedstock consumption plans for the current and next month, as well as actual consumption in the previous month. OPIS contacts feedstock procurement officers for the survey by phone, email or messages in the last week of the previous month or the first week of the current month. OPIS may use proxy data based on the best market information available for minor missing entries due to non-response by a stipulated deadline. Such proxies should not alter the overall trend or deviate from the general behaviors of most participants.
–Reporting by Cheryl Lee, clee@opisnet.com and Yiwen Ju, yju@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com