The July Contract Price (CP) set by Saudi Aramco has been announced, showing reductions for both propane and butane compared to June. Propane is set at $580 per ton, down $180 from the prior month, while butane is at $600 per ton, a decrease of $220. The estimated landed cost for propane is around 4,798 yuan per ton, and for butane, it is approximately 4,948 yuan per ton. The average monthly discount is assessed at $60 per ton.
The July propane CP experienced a significant decline, marking the largest single-month drop since April 2020. The primary driver was the easing of geopolitical tensions in the Middle East, with the Strait of Hormuz returning to normal shipping traffic. This led market participants to anticipate a resumption of regular regional outflows, completely erasing the previous geopolitical risk premium. Expectations of ample supply have clearly pressured CP prices downward.
From a trading perspective, the current CP spot pricing aligns closely with paper market prices, meeting general industry expectations but creating a stark contrast with earlier high quotations. As prices rapidly retreated from their peaks, overall market sentiment has turned cautious and uncertain. The proportion of Middle Eastern cargoes traded on a Delivered Ex-Ship (DES) basis has notably increased, reflecting growing divergence in traders’ views on future CP trends.
Concurrently, the discounts for spot transactions settled against the CP benchmark show significant variation, ranging from single-digit dollars to as much as $60 per ton, indicating substantial price volatility.
Comparing Domestic Import Costs with CP Expectations
Looking at the comparison between domestic import landed costs and CP expectations, the transaction discounts in June varied widely, showing a polarized trend from June 19th onward. In the first half of the month, tensions in the Middle East remained elevated, sustaining high-discount trading from the previous period. However, after the 19th, following the signing of a US-Iran memorandum and the announcement of 60-day free passage through the Strait of Hormuz—coupled with a roughly 30% year-on-year surge in US inventories—expectations of looser supply intensified. This led to a broad decline in international spot prices, with both the benchmark price and discounts falling, significantly lowering the trading focus for international cargoes.
As the positive impact of improved Strait navigation materialized and regional outflows increased, sellers' willingness to offload cargo far exceeded buyers' essential procurement demand. Consequently, CFR price declines were notably steeper than the drop in CP pricing. Some traders holding positions to support the market limited the CP price decline, further narrowing the spread between the Far East Index and the CP.
Market Outlook: August CP Expected to Decline Further
Looking ahead, the overall regional supply is expected to remain ample following the reopening of the Strait of Hormuz, compounded by abundant liquefied petroleum gas (LPG) supply from North America. This global surplus is likely to continue suppressing international LPG prices. Additionally, August traditionally marks the off-season for LPG consumption, leading to a market structure of strong supply and weak demand. With insufficient bullish confidence, the weak market trend is unlikely to reverse.
The decline in import costs is expected to further weigh on domestic market conditions. Simultaneously, domestic LPG supply is anticipated to increase. Under the combined pressure of these multiple bearish factors, domestic LPG prices are projected to face overall downward pressure in July.
Comments