Entering September, the Shandong LPG market experienced a rapid price increase as bullish factors from both domestic and international markets converged. Rising Saudi Contract Prices (CP), heightened geopolitical tensions, tightening international supplies, and stronger domestic demand all contributed to the sharp upward movement.

International Market: Rising CP and Geopolitical Risks Support LPG Prices

At the beginning of September, Saudi CP increased significantly amid geopolitical uncertainty and tightening supply conditions. The September CP was announced at $625/tonne for propane, up $5/tonne month-on-month, and $660/tonne for butane, up $20/tonne.

Based on current import conditions, the corresponding landed costs were approximately RMB 6,239/tonne for propane and RMB 6,575/tonne for butane, providing a strong cost-driven foundation for domestic price increases.

Meanwhile, continued US-Iran tensions and disruptions affecting shipping through the Strait of Hormuz increased concerns over the security of global crude oil and LPG supplies. Higher international oil prices, freight costs and regional premiums further lifted the import cost of LPG into East Asia, providing additional upward pressure on the Shandong market.

Domestic Demand Strengthens as Downstream Operations Recover

Domestic fundamentals also turned increasingly supportive.

With the exception of Huayi Chemical and Yuhuang Shengrong, most downstream butane deep-processing units in Shandong are currently operating normally. The overall industry operating rate has recovered to above 80%, while demand for both residential LPG and butane resources has climbed to relatively high levels for the year.

The recovery in downstream operating rates has strengthened purchasing demand and reduced the availability of spot resources, providing solid support for local LPG prices.

LPG Prices Rise Sharply, While Downstream Margins Shrink

The combination of strong domestic demand, elevated international benchmarks and relatively tight supply pushed prices for LPG-related products in Shandong up by approximately 6%–13%.

However, price increases were uneven across the supply chain. Raw material prices rose much faster than those of downstream deep-processed products. During the same period, MTBE and maleic anhydride prices increased by only around 2%–4%.

This widening price gap has significantly compressed the profit margins of downstream deep-processing plants. Although product prices have increased, the rise in feedstock costs has been substantially greater, placing increasing pressure on operating profitability.

Supply Outlook: Domestic Production to Recover in Mid-September

Domestic supply is expected to improve gradually.

Hongrun Petrochemical and Wudi Xinyue are scheduled to resume operations around mid-September, which should increase local LPG availability and help ease part of the current supply pressure.

However, imported resources remain relatively limited. Low arrival volumes during September are unlikely to fully compensate for the domestic supply gap in the short term. As a result, spot availability in Shandong may remain relatively tight even after some domestic production capacity returns.

Market Outlook: Short-Term Strength, Followed by Potential Correction

In the short term, the Shandong LPG market is likely to remain relatively strong. Import costs remain elevated, international supply risks have not been fully resolved, and domestic supply-demand conditions continue to provide support.

However, further price increases may face several constraints.

First, high domestic prices could encourage importers to increase purchases, gradually improving market availability. Second, the continued squeeze on downstream margins may lead some deep-processing plants to reduce operating rates or temporarily suspend production. Finally, the expected recovery of domestic supply in mid-September should gradually ease the current spot shortage.

Overall, the Shandong LPG market is likely to show a “rise first, then decline” pattern. Near-term prices still have room to move higher, particularly for residential LPG and butane, but the sustainability of the rally will depend heavily on international geopolitical developments, import arrivals and downstream operating rates.

If geopolitical tensions ease, international prices and market sentiment could weaken relatively quickly. Conversely, prolonged disruptions around the Strait of Hormuz could further tighten global supply and extend the period of elevated LPG prices.

For the Shandong market, the key factors to watch in the coming weeks will be international geopolitical developments, import arrivals, domestic production restarts, and downstream operating rates.