Global LPG Conversations: Hormuz disruption tests Asian LPG demand

Hello, and welcome to Global LPG Conversations, an Argus podcast where we cover the latest developments in LPG markets and prices. My name is Valdemar Jasczyk and I serve as the deputy editor for Argus International LPG Reports, which is our of course daily pricing service we put out for the global market. Today I'm joined by our LPG editor for Asia, Francis Go. Hello Francis.

We're sitting to examine how Asian markets adjusted to what the industry once hoped to be just a temporary disruption, namely the closure of the Strait of Ormuz as a result of the Iran war. We are now really into the third month of this conflict, which has resulted in a cumulative loss of global LPG supply of over five million tons and counting. But the prices appear to be heading in a bit of an opposite direction in the last few weeks after hitting multi year highs in March.

So Francis, could you please tell us Uh how have the m uh Asian markets reacted uh now coming into the third month of the conflict, meaning the main importers of Middle Eastern LPG, China and India. The near closure of the strait had dealt a severe blow to India since 90% of the country's imports were via that waterway last year. India's domestic refineries had ramped up production by forty percent following the supply crisis.

Um, New Delhi had directed state controlled and private sector refiners to prioritize LPG output and by curbing the use of LPG as petrochemical feedstock. But despite such import diversification and higher domestic refinery production, consumption in India dropped by 16% on the year and 8% on the month to 2.2 million tonnes in April.

So it has been ten weeks since the crisis and besides the first four days of panicked buying, spot purchases had slowed because of better supply chain chain management and demand destruction. So India um had imported um around nine hundred and seventy thousand tons of L P G in April. This is down from the monthly average of 1.94 million tons in 2025, and it is the lowest in eight years.

Last year, Indian importers had committed 10% of their import demand to US supply and this trend has accelerated because the US is now the next biggest source of supply for March and April import. US supply accounted for 38% and 40% respectively of total imports into India. Um, as for May, uh we can see from uh ship tracking data that six six hundred forty thousand has been loaded from the US in April for delivery to India um in May and early June.

So, um, and besides buying, uh, delivered cargoes, um, the Indian importers had also deployed Ghatan chartered vessels to load from the US in May and June. So the country appeared to have managed quite well despite the lower imports um because sadly uh due to demand disruption. Many households have moved to induction cookers um from the gas stores. Um and the government has stopped LPG cylinder supply to whoever has natural gas pipeline pipeline access.

So it can be debated or argued that the demand will return once supply returns and prices are low enough to stimulate LPG demand again in India. But with this inelasticity broken, it becomes difficult to qualify how much demand can come back. So that's for India.

The country most impacted. Um, but unlike India, China import demand is mainly driven by petrochemical demand, which is more elastic in nature. Middle East exports made up 49% of the country's 2025 imports. Um for April.

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The Chinese flexible crackers had also lowered run rates due to poor cracking margins and residential demand were also displaced by higher domestic production because Chinese refineries had raised runs at the behest of the government. So Chinese importers show high flexibility in terms of their import demand. Um they did buy a lot more cargoes in the past two weeks uh compared to the month prior, after propane prices corrected and downstream petrochemical product prices climbed higher.

That's quite an interesting turnaround for Uh India, adapt yeah, as you said, ninety percent of the supply came uh from the Middle East, so it was quite a supply.

shock but s uh but following the very the big panic buying drive of the very early demand side kinda started catching up as well as mitigation measures. So you can see both for China and India higher refinery production diversification to the well for especially for India to the US, which just deepened the initial steps done already last year, as you mentioned, the term contract signed for

uh twenty twenty six. So in the wake of all the tariff wars that we discussed at length last year and also repairing of the US uh India relationship, but now jump from ten percent to thirty eight percent. That's quite Significant. And the the difference in the demand you're saying that Uh India's demands uh could not actually come back because uh is actually be destroyed with uh the switching to other tools for

Uh uh for clean cooking obviously which is one of the main drivers there. But China could just produce rates or increase rates in response to feedstock costs. So that might actually be a Better come back when if the straight opens. Moving on, uh how has uh those moves on the demand side, which obviously have caught up to the supply shock, affected the prices uh in Asia, especially our of course our benchmark are good part in

Traditionally, uh the Northeast Asian importers has been buying on the AFEI basis. And for buyers in India and Southeast Asia, they have always been using the CP as a legacy pricing for both their term and sport. Um, so what happened and what we have seen in the last um ten weeks is that they have mostly maintained their purchases on the CP basis.

But we believe that there's also some fixed price deals done. And for the first time, we had seen importers in Indonesia, India, and the Philippines use the AFBI for their spot purchases. So this is um a new development and um we are we we hope that um you know because of the way the market is changing is in it in its uh supply flow nature, the pricing system um would evolve as well.

Because of the near shut in in Middle East Gulf supply, it becomes I mean, the CP becomes less representative to price. imports into these new countries, since most of these Asian imports in April are either US origin or non Middle East origin. So if this conflict prolongs and demand is continuously being met by non Middle East supply, the underlying value of these cargoes will naturally take on other pricing systems other than the CP.

No, of course, yes. Uh as you mentioned historically the Saudi Aramco's contract prices have been dominant in that region, but it has become quite a contested topic since most of the product cannot re actually reach Uh the importers, except uh sort of uh of course with the exceptions of uh exports from Yandle but that is just uh

fraction of what they used to go and then uh you come into this question of uh how do you set C P and what kind of uh prices they're gonna be and also most of the imports are now could be priced on a different basis.

Another thing that has been quite a big consequence of the war is a surge in butane prices. Uh in uh Asia or globally. Can you uh please tell me more about why has that happened and uh why we're seeing record premiums compared to propane, which has not historically been the case. Uh because the India and Southeast Asia are highly dependent on middle um of butane heavy cargoes.

So actually, you know, in in the past five to eight years, as we see the higher inflows of US imports into into Asia, um naturally um by by geographical advantages. Um US cargos should be feeding um the demand centers in in Japan, Korea and and and East China, which is propane heavy. And then for the nearer Middle East suppliers to be supplying into India and Southeast Asia where protein heavy is the right mix. Um so what had happened had basically blew up this um structural flow.

Um and it's gonna be here to stay and because of the displaced um demand, they have to turn to the US which had sent the the the butane AFEI to a record high over the propane um this looks to continue um in years i in in in the near future um because um I mean judging by how the situation is evolving in the Middle East um it appears that um the US is the only uh uh uh dominant source that can can can meet the supply. And for the AFEI it is a CFR Japan code.

So um for buyers in Northeast Asia, they will have to compete with the Indians for butane and that's why um the premiums are being elevated and being supported, um, since overall supply of butane is small. And also, we are seeing a structural change to the trade flow. Um, you know, the thing is that we the market or uh a segment of the market had actually forecast that the street closure would range from a couple of days to two weeks or at worst four weeks.

But sadly, we are now in week 10. And based on anecdotal evidence and buying patterns, we understand that Asian importers had been hopeful of the reopening of the street decisively.

for trade flows to resume, for for exports from the Middle East to resume. Um, but frankly, I mean, looking at where we are today, on a best case scenario, even when flows return to pre war status, Supply diversification from this energy shock that we all suffered will be foremost for governments worldwide since the unthinkable had happened. Um so this structural change um is going to be further solidified.

And from what we have been seeing, especially after hostilities resume this week for vessels trying to cross the strait, we can see that the Middle East flows will be intermittent and prices of... cargoes sold are subjected to varying insurance costs which could take time to be sorted out.

So for both short and the long-term outlook, um we believe that the flows will change structurally. Well I I think that uh fair bad. Yeah, as you say, ever since the Bears opening salvos of the war market has been kinda counting of every I guess every tweet from President Trump about the progress of peace stock.

And that was followed by some kind of e another escalation. We just witnessed this a few days ago. At the prices uh of L P G crutes across the energy complex uh complex react with a crazy volatility. It's dropping significantly and then ramping up as the promises of the opening prove premature. So this uh this very much, as you say, could be a long term problem.

And it is amazing that only a year ago we saw another reshaping of trade flows with LPG, especially in Asia in the uh aftermath of the tariff war. And now we're seeing another year, another complete We're juggling over the jigsaw. Uh but could you please tell me more about how do we s uh how do you see the post war scenario for the market? Press it that everything goes well. Hi, I mean um no one knows.

Really no one knows. Um, well but the thing is that because from what we can see that the geopolitical tensions are still very high and the risk to shipping remains very high. Um, because ceasefire is very tenuous and conflict in the Middle East is really a protracted issue. Um and the cost of insurance um to sail through via the strait is going to be high for so many reasons.

Um, from what we've heard from the market is that based on this current situation, this stalemate, this deadlock that we are in, um, there has been uh a bit of uh trade development. uh whereby ship owners who have a higher risk appetite is or has or is going to traverse the waterway to offer transshipment services at the Gulf of Onan.

So, post-war or based on the current fragile ceasefire that we are at now, It does seem that this shuttling service could bridge the supply gap whereby cargos that are loaded from different producers could find its way out, um and do a ship to ship um outside at the Gulf of Oman. So that is a recent trade development that we are hearing of.

Um and when it comes to price movements, the prevailing outlook is that any price correction that occurs once peace were to resume, is that um after the plug is removed, um prices could correct. But such correction would be temporary because so many, many importers need to backfill their storages. So, overall shipping is still in a state of flux. We don't know whether negotiated transits will be a permanent feature or that there is a good chance for the return to total freedom of navigation.

It will take time to see where the new normal establishes now that the genie is out of the portal. Uh yeah, you're right. There are so many unknowns and the situation is very dynamic, especially day to day. It's interesting to see how on the shipping side uh this will evolve. How how the freedom of navigation will evolve, whether the Iranian system of tolls will be ever acceptable either to the US or to the Middle

uh Middle Eastern producers. How much can they produce with all the damages in the war as well that we don't know the full extent of? And it's just incredibly dynamic situation. And yeah, it all has to fall in the right place so we won't see actual when we'll see actual normal or what will normal be, it's uh

It's for anyone to say really. But this has been uh incredibly uh insightful analysis. Thank you for how the market has been reacting, how the demand side has caught up to the initial supply shock with Massive drops in imports, increase in domestic supply, all the kinds of mitigation measures and redirection of the uh trade flows yet again in Asia. Especially with the US being well, I suppose a big winner if you can say that, the U US uh cargo sellers. And thank you, Francis, for that.

Thank you to our listeners. And we look forward to doing another one of these podcasts in the near future. So keep an eye on your social media and other things. And for the latest of all of these topics, do go to your Argus LPG subscriptions. That's uh Argos LPG Daily, uh which I'm a deputy editor of, Argus LPG World twice a month, and Argus LPG Alpha. And if you're interested in any of them, do not hesitate to contact us.