According to the Commodity Market Analysis System of SunSirs, the peak season of the LPG market in 2023 is not strong, and the off-season is even weaker. Taking the civilian LPG market in Shandong as an example, the average price at the beginning of the year was 5,014 RMB/ton, and the average price at the end of the year was 4,960 RMB/ton, a decrease of 1.08% throughout the year.
The trend of LPG in 2023 can be mainly divided into the following three stages:
Phase 1 (January-June): Prices rise and fall back to lows. Downstream replenishment is concentrated around the Spring Festival, and upstream inventory is relatively low. Prevention and control policies will be gradually lifted in December 2022. With the end of the peak of infection, both civil and commercial demand will increase to varying degrees, leading to a wave of price increases for LPG, which has reached a high point within the year. Subsequently, international oil prices performed poorly, the weather gradually warmed up, and the demand for civilian combustion decreased. Coupled with the continuous decline in import costs, there was ample import supply, leading to loose domestic supply. Upstream shipments are not smooth, and LPG prices continue to decline.
Phase 2: (July-September): Prices continue to rise. In July, the price of imported gas began to rebound and continue to rise. In terms of demand, although the temperature is relatively high and civil gas is in the off-season of demand, chemical demand has become the main growth point. Due to the low prices of LPG in the second quarter, the profits of PDH units have been repaired, leading to the large-scale production of new units, effectively driving up the price of LPG.
Phase 3: (October-December): Prices fluctuate from high to low. In the fourth quarter, the price of imported gas remained high, with high import costs and reduced arbitrage space for import traders. Under high costs, the profit of PDH equipment was inverted, and the operating rate remained low at around 60%. Although the demand for civilian combustion was in peak season, under high prices, demand was suppressed, and the price of LPG fluctuated and decreased due to supply-demand contradictions.
What is the trend of LPG in 2024?
In terms of supply: China's LPG mainly comes from by-product gas from refineries. With the continuous improvement of China's crude oil processing capacity, the production of LPG is gradually increasing. The expected production in 2023 is 53 million tons, a year-on-year increase of 6.1%, and it is expected to continue to maintain stable growth in 2024.
In terms of demand: The demand for LPG mainly includes two aspects: civilian fuel and chemical raw materials. From the perspective of civil combustion, the process of rural urbanization is accelerating, and the natural gas substitution rate is constantly increasing. In addition, with the impact of other new alternative energy sources, the demand for civil gas fuel is decreasing year by year. In terms of chemical industry, taking the main downstream PDH unit as an example, a new production capacity of 5 million tons of PDH units will be added in 2023. 2024 will still be a major year for the production of PDH units, and it is expected that the total amount of PDH units put into operation next year will be about 10 million tons, which translates to a demand for imported LPG of 12 million tons. Based on the current competitive landscape in the industry, it is difficult for all PDH devices to be put into operation as scheduled next year. Conservatively estimated, the expected production capacity of PDH devices that can be put into operation as scheduled next year may be around 5 million tons, which translates to a demand of 6 million tons for imported LPG. It can be seen that the demand gap is still significant.
In terms of import and export: Due to the sudden rise of the chemical demand market, the import volume of LPG has been increasing year by year in recent years. In 2023, China imported a total of 32.6784 million tons of LPG. Among them, a cumulative import of 25.68 million tons of propane and 6.49 million tons of butane increased by 21.38% year-on-year. The heat of downstream chemical production will not decrease in 2024. Due to the high variety requirements for chemical gas, domestic production is almost entirely dependent on imports. It is expected that the import volume will continue to increase in 2024.
In terms of crude oil: As a byproduct of the refining process, LPG has a yield of 2% -5% of the crude oil input, which is one of the important influencing factors on the trend of LPG. The demand for international oil prices in 2023 has slowed down due to geopolitical factors such as the Federal Reserve's interest rate hike and the Israeli Palestinian issue. The crude oil environment will become more complex in 2024, and institutions predict that the focus of oil prices will be slightly higher than in 2023.
In summary, the demand gap in the LPG market will further expand in 2024, but the demand gap mainly depends on imports. It is expected that domestic LPG prices will fluctuate around international oil prices in 2024, closely following the pace of imported gas and showing a seasonal trend of first rising and then falling. In the first half of the year, it fluctuated downward, but rebounded at the bottom in the second half. The high point appeared in the third quarter, with a main fluctuation range of 4,000-5,500 RMB/ton.
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