Core View: Bearish. Recent strength in the broader energy complex has pushed the PG disk price significantly higher, following external markets. However, upward pressure on PG domestic prices is substantial, and the PG basis has been continuously compressed. The October contract is now at a premium to East China spot prices, creating a need for basis convergence. Within the energy complex, PG is suitable as a short-position allocation.

Supply Side: Bearish. July LPG arrivals were ample, with August expected to see some reduction, though absolute volumes remain high. Refinery operating rates are recovering noticeably, and LPG commercial supply is stable, having rebounded considerably from earlier lows.

Demand Side: Neutral. PDH units are operating steadily, with utilization rates potentially reaching annual highs. Blending feedstock margins and operating rates have both improved significantly, buoyed by higher gasoline prices.

Valuation: Bearish. Recent gains in the disk price have primarily compressed valuations, including both basis valuation and internal-external spread valuation. Without more significant geopolitical events or developments in external crude oil prices, the lower basis is likely to limit upward momentum in the disk price.

Geopolitics: Volatility Remains Low

Recent geopolitical volatility is minimal, with neither the US nor Iran making substantive changes to their geopolitical actions. The Strait of Hormuz remains nominally closed, yet dark fleet activity is robust, allowing some Middle Eastern suppliers to still move cargoes out of the Persian Gulf and conduct STS operations off Oman or India's west coast. Bessent is reportedly set to announce the "toughest sanctions" on Iran this week; market watchers are observing whether this rhetoric will bring about substantive geopolitical change.

Supply: Abundant July Arrivals, August Expected to Decline

China's June LPG imports were similar to May's, with July arrivals ample, including substantial volumes from both the Middle East and the US. Notably, US and Middle Eastern LPG export volumes to China both declined in July, suggesting a potential decrease in August imports. US LPG export capacity appears to have peaked, while Middle Eastern export capacity remains constrained by the Strait of Hormuz situation. Demand destruction in India is becoming apparent; interestingly, Indian gasoline, diesel, and jet fuel consumption have all hit record highs, but LPG and naphtha demand is clearly weakening, highlighting structural differences in India's oil consumption pattern.

Inventories: Port Stocks Continue to Draw Slightly

Domestic port inventories continued to edge lower this week. With arrivals still relatively sufficient and downstream demand limited, port inventory levels are not under significant pressure.

Valuation: Limited Upside for Civilian Gas Prices

While external prices are booming, domestic civilian gas prices remain sluggish. Shandong and South China prices have seen only minor fluctuations, while East China prices are firmly anchored at 5850 yuan with no movement. This price action suggests that during the off-season for combustion, with shrinking demand, downstream buyers have almost no capacity to absorb high prices. The dual supply from refinery by-product gas and imports reinforces price resilience; even with rising cost lines, civilian gas remains in a high-level, prone-to-decline-but-hard-to-rise situation.

Valuation: Basis Declines Further

The LPG basis has slipped further, with spot prices essentially frozen while the disk price rises, compressing the basis. The current spot basis has fallen to previous lows, and the PG2610 contract is already at a premium to East China civilian gas spot prices. Spot prices are capping the futures price's ability to rally further. For LPG, a sustained scenario of futures trading at a premium to spot is difficult to achieve, and warrant pressure may soon follow.

Supply: VLGC Freight Rates Range-Bound High, Panama Canal Remains Under Pressure

VLGC freight rates are fluctuating at high levels with a firm tone. The US Gulf to Far East (via Panama) rate stands at $269-271, US Gulf to Northwest Europe at $155-157, and Middle East to Far East at $208-210. The El Ni帽o phenomenon persists, with Gatun Lake water levels continuing to decline and expected to fall further. The Panama Canal Authority has announced reduced transit slots starting in September. Slots will be cut to 34 from September 4th and to 32 from September 15th. Canal congestion is expected to intensify further, and auction prices for transit rights may also rise.

Supply: LPG Commercial Volume Stable

Refinery maintenance returns remain frequent this week, and crude distillation unit operating rates are stable. This is reflected in China's LPG commercial volume, which is steady this week. Although still significantly below the average level of previous years, it has improved considerably from the early July low.

Demand: Blending Feedstock Margins and Operating Rates Improve Significantly

PDH production margins and utilization rates remain stable at relatively high levels this week. Boosted by higher gasoline prices, blending feedstock production margins have recovered substantially. Both MTBE and alkylation oil production margins have rebounded from earlier lows, driving utilization rates at MTBE and alkylation units back into the average range for this time of year.

Demand: China's PDH Maintenance Schedule Remains Stable

China's PDH unit maintenance schedule remains stable this week. New maintenance includes Wanhua Chemical Phase I and Ningxia Runfeng, totaling 1.05 million tons of capacity. Returning from earlier maintenance is Quanzhou Guoheng, with 600,000 tons of capacity. The PDH utilization rate edged down from 73.84% to 71.97%. Supported by healthy profit levels, further return plans from units including Satellite Chemical, Jiangsu Sailboat, and Donghua Ningbo are expected, with PDH utilization potentially hitting a new annual high above 75%. Driven by the Iran situation, PDH enterprises could secure better profits than in the previous two years.

Disk: PG Performs Strongly on External Cues, But Primarily Compresses Valuation

Recently, guided by geopolitical events and external crude oil prices, the PG disk has performed strongly, and the overall energy complex is also firm. However, unlike other chemical products that are following a September spot-futures convergence logic, PG's spot performance has not been particularly strong. The disk's rise has mostly squeezed valuation, including both basis and internal-external spreads. If external prices cannot sustain the upward guidance for PG, a pullback in PG is more likely given its own fundamentals.

Disk: Higher Prices Could Stimulate Warrant Generation

LPG disk prices are currently elevated, but registered warrants remain scarce compared to previous years. With the disk already at a premium to spot, this could stimulate warrant generation. If warrants are generated at the usual pace during the next centralized cancellation cycle, this would exert downward pressure on October and subsequent contracts.

Structural Data Updates

Price Data: LPG and related product trend comparison charts. Price Data: LPG external market price and spread data. Supply: US propane production and export volumes remain constrained. Overseas Data: EIA forecast data. Overseas Data: India-related data. Overseas Data: Japan-related data.