Since November, Dorian LPG (LPG) futures prices initially saw a sustained rise, followed by a brief pullback, before surging again at Friday's close—outperforming market expectations. However, prices retreated slightly on Monday.
Analysts attribute the recent price strength to tightening supply in the Far East LPG market. Kuwait's supply declined due to gas field maintenance, delaying some shipments, while Saudi Arabia reduced propane supply in December amid rising domestic demand. Additionally, limited arbitrage opportunities between U.S. and Far East LPG markets exacerbated the supply crunch. On the demand side, Japan and South Korea entered restocking cycles, China's propane dehydrogenation (PDH) plants showed robust procurement demand, and strong methyl tert-butyl ether (MTBE) exports (nearly 400,000 tons in December) supported butane demand.
Currently, LPG demand remains seasonally strong, with Japan, South Korea, and India joining China in driving consumption. Chemical demand remains robust, with PDH operating rates at historic highs and MTBE exports performing well. Refinery output has recovered but remains historically low, while LPG inventories have dropped significantly.
Cost-side support is another key factor. The December Saudi Contract Price (CP), expected to rise by $10–20/ton month-on-month, has prompted terminals and refiners to push spot prices higher, lifting futures prices as well.
Domestic LPG supply in November is estimated at 2.2 million tons, down 190,000 tons from October, while imports fell by 220,000 tons to around 2.7 million tons. Lower-than-expected arrivals in key regions like East and South China—with intermittent supply shortages in some South China ports—have bolstered prices. Analysts expect short-term strength to persist due to tightening Middle East supply, rising freight costs, and seasonal winter demand.
However, analysts remain cautious about the sustainability of the rally. Some argue that the price surge reflects short-term supply-demand dynamics rather than long-term fundamentals. PDH margins are deteriorating, which may slow propane procurement, while a weakening basis could spur warehouse receipt accumulation. On the supply side, the reopening of the U.S.-Far East arbitrage window and the resumption of Middle East gas field maintenance—along with new field startups in H1 2024—may ease supply constraints.
Others note that earlier concerns over OPEC+ supply hikes and October's unexpectedly weak Saudi CP did not materialize, while persistently low U.S. and Middle East exports to China and resilient PDH demand have driven a price recovery.
Looking ahead, market watchers suggest monitoring domestic chemical demand trends and Middle East supply resumption. A 5-percentage-point drop in PDH operating rates could outweigh heating demand growth, while Middle East supply recovery may signal the end of the current rally.
Multiple factors—including crude oil prices, U.S. and Middle East supply-demand dynamics, and Northern Hemisphere winter demand—will influence LPG futures. While fundamentals remain moderately supportive, analysts see limited upside potential for sustained price gains.
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