Market Analysis LPG futures market performance this week: Prior to the Spring Festival holiday, PG futures experienced volatile trading with limited market fluctuations, recording a weekly decline of 0.14%. During the holiday period, geopolitical tensions escalated in the Middle East, leading to price increases in international crude oil and LPG markets. The front-month FEI propane swap rose by 4.91% weekly for the week of February 20, while the CP propane swap gained 2.94%.

Supply Side: Overseas LPG supply has recently tightened marginally, with Middle Eastern production increases falling short of expectations and U.S. supply temporarily constrained due to cold weather disruptions. Additionally, rising tensions surrounding Iran, although not yet causing actual supply disruptions, have increased potential risks and boosted market risk premiums. According to shipping schedules, U.S. LPG shipments in February are projected at 5.97 million tons, down 110,000 tons month-on-month but up 1 million tons year-on-year. U.S. export facility expansions will continue this year, with export capacity expected to further increase after the cold weather impact subsides. U.S. LPG shipments to China in February are estimated at 620,000 tons, decreasing by 70,000 tons month-on-month and dropping 540,000 tons year-on-year. Since trade conflicts emerged last year, Chinese buyers have shifted toward Middle Eastern supplies, significantly reducing exposure to U.S. cargoes compared to previous years. In the Middle East, February shipments are projected at 3.88 million tons, down 350,000 tons month-on-month but up 370,000 tons year-on-year, with the main reduction coming from Iran. Trend-wise, OPEC's gradual easing of production cuts and increased crude oil production quotas, coupled with new gas field project startups, suggest further growth potential for associated gas and refinery gas supplies from Middle Eastern oil and gas fields. However, in the short term, Saudi Arabia's paused production increases limit actual growth, while regional tensions introduce potential supply risks. For Iran, February LPG shipments are estimated at 510,000 tons, down 570,000 tons month-on-month and 420,000 tons year-on-year. Recent escalations in Iranian tensions, with the Trump administration indicating potential military intervention and the U.S. deploying dual aircraft carriers to the Middle East, have not yet caused substantive impacts. Should conflicts escalate further, supplies from Iran and the Persian Gulf face risks, potentially leading to significant tightening of domestic supply sources. The situation remains tense, with the U.S. potentially launching military strikes against Iran at any time. Additionally, both sides plan to hold a third round of talks in Geneva on February 26, requiring close monitoring of developments. Domestically, as refinery units resume operations, commercial supply of domestic LPG showed a marginal recovery before the holiday, though the increase was limited. For imported gas, LPG arrivals have been somewhat constrained due to delayed U.S. shipments and tightening overseas supply. Based on shipping schedules, China's LPG arrivals in February are projected at 2.39 million tons, down 120,000 tons month-on-month and 90,000 tons year-on-year.

Demand Side: During the Spring Festival, traditional peak season for combustion gas demand, combined with increased holiday travel and active catering consumption, commercial combustion demand received a seasonal boost. However, with generally higher domestic temperatures, the absolute increase is expected to be limited. For chemical demand, strong international market trends and rising import costs for propane and butane have pressured profits at downstream facilities like PDH units, suppressing raw material demand. Pre-holiday PDH operating rates were around 65%. Notably, if the comprehensive imposition of consumption tax on naphtha circulation is implemented, propane as an alternative feedstock route could receive a potential boost. For C4 hydrocarbons, domestic demand for blending components has been weak recently, with a subdued etherified C4 market atmosphere. Except in Shandong, etherified C4 prices in most regions remained inverted compared to civil gas prices. However, lower etherified C4 prices have marginally improved alkylation profits, and rising international oil prices during the holiday may stimulate blending demand, with expectations of a recovery in alkylation unit operating rates.

Inventory Side: According to Longzhong Information data, as of February 12, China's LPG port sample inventory stood at 2.0254 million tons, up 7,300 tons month-on-month, an increase of 0.36%. Meanwhile, the sample enterprise storage capacity utilization rate was 21.10%, down 3.11% month-on-month.

Before the Spring Festival holiday, the LPG market overall exhibited a pattern of "stronger international, weaker domestic" performance. Earlier, factors such as U.S. cold weather disruptions and Saudi Arabia's paused production increases led to marginally tighter overseas supply, keeping international prices relatively firm, with Saudi Arabia's February CP official price continuing its upward trend. However, domestic PG futures performance was relatively muted. On one hand, high raw material costs pressured profits at downstream facilities like PDH units, creating negative demand feedback. On the other hand, the price inversion between etherified C4 and civil gas added additional pressure on PG futures. Furthermore, warehouse receipts and delivery arbitrage introduced market disturbances, particularly for the PG2603 contract, where pressure from concentrated warehouse receipt cancellations was more pronounced. This pressure is expected to ease after the switch to the main contract. As tensions surrounding Iran remain high during the Spring Festival holiday, short-term market variables primarily stem from geopolitical factors. Given that Iran is a major LPG producer and the Strait of Hormuz is a critical chokepoint for oil markets, any U.S. military action against Iran would further escalate implicit geopolitical premiums in the market, requiring close attention. However, if conflicts remain limited and Iran-U.S. negotiations show progress, the global LPG balance is still expected to be oversupplied, presenting significant resistance to upward price movements.

Strategy Outright: Short-term bias is cautiously bullish with volatility; monitor Iranian situation developments. Inter-commodity: None Calendar spread: None Futures-physical: None Options: None

Risks Sharp fluctuations in oil prices, macroeconomic policies, tariff policies, port shipment delays, refinery maintenance exceeding expectations, terminal demand exceeding expectations.