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Market News Will the spot price of LPG futures rise more than 40% in the past four months?

Will the spot price of LPG futures rise more than 40% in the past four months?

Since May this year, the price of LPG futures has risen sharply. The main 2110 contract rose from 3,700 yuan/ton in early May to the closing price of 5405 yuan/ton on September 9, an increase of nearly 46%. The trend is significantly stronger than other energy and chemical products in the same period. . In terms of spot, LPG spot prices have steadily increased since May, but the increase is smaller than that of futures prices.

2021-09-10
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Since May this year, the price of LPG futures has risen sharply. The main 2110 contract rose from 3,700 yuan/ton in early May to the closing price of 5405 yuan/ton on September 9, an increase of nearly 46%. The trend is significantly stronger than other energy and chemical products in the same period. . In terms of spot, LPG spot prices have steadily increased since May, but the increase is smaller than that of futures prices. The average price in the South China spot market rose from RMB 3,750/ton to RMB 5,000/ton on September 9, an increase of over 33%. Since September, the current price of LPG futures has accelerated significantly. The futures price has risen from 5,100 yuan/ton to 5,405 yuan/ton, and the spot price has also accelerated. The average spot price in South China has risen from 4700 yuan/ton to 5000 yuan/ton. . We are more optimistic about the market outlook. LPG still has the possibility of upside in the market outlook. Investors can place more orders on dips and strictly set stop losses.



In September, Saudi Arabia's CP hit a 6-year high, with strong LPG cost support


The September Saudi CP announced at the end of August rose to US$665/ton for propane, an increase of US$5/ton month-on-month, and US$665/ton for butane, an increase of US$10/ton month-on-month. This September CP has hit a new high in the past six years, which has provided great support for the current price of LPG to rise. According to statistics from 2016 to 2021, the correlation coefficient between Saudi CP and domestic spot prices is as high as 0.90. Taking into account the large import volume in East China and South China, the trend of CP has a particularly large impact on spot prices in East and South China. Looking back at history, it can be seen that the last high point of Saudi CP occurred in October 2018. At that time, the Saudi CP propane price was 655 US dollars/ton, butane was 655 yuan/ton, and the corresponding domestic spot price was 5500 yuan/ton. The current domestic average spot price is 4800/ton, which is still far from the high point in 2018. And in October, Saudi Arabia’s CP is expected to offer a further upward trend, which is close to US$700/ton. Later, driven by improved demand, domestic spot prices are expected to rise sharply, repairing the discount to the disk, and even exceeding the futures disk price.



The traditional peak season is coming, fuel demand is expected to improve


The demand and price fluctuations of LPG have obvious seasonal characteristics: winter temperatures are low, LPG demand increases, and prices rise seasonally; summer temperatures are high, LPG demand decreases, and prices fall seasonally. On a monthly basis, there will often be periodic lows in LPG spot prices from June to August each year, and periodic highs in prices from October to December. The main reason for this phenomenon is that the fuel demand of LPG is greatly affected by temperature. In summer, the temperature is higher, and obtaining the same amount of heat requires less LPG; in winter, the temperature is lower, and obtaining the same amount of heat requires more LPG. Moreover, the price of LPG substitutes also has obvious seasonality, which has a linkage effect on LPG. For example, LNG, the most relevant variety of LPG, has obvious seasonal characteristics. The price in summer can be as low as 2,000 yuan/ton, and the price in winter can rise to 10,000 yuan/ton. Combining past experience, under the influence of the temperature drop, the demand for LPG fuel is expected to improve significantly. After entering the fourth quarter, the spot price is expected to gradually rise and drive futures prices upward.



There are many plans to put into production of PDH equipment, and the demand for chemical industry has increased significantly


In the downstream demand of LPG, the demand for chemical deep processing has accounted for nearly 50%. The demand for LPG chemical industry in the early stage was relatively weak, and the operating rates of alkylation, MTBE and PDH were all at a low level. However, affected by the improvement in demand, the operating rate of alkylation and MTBE has gradually rebounded recently, and the spot price of C4 after ether has also risen by a large margin. The demand on the LPG chemical side is expected to continue to improve in the later period, and the operating rate is likely to increase. Among the needs of chemical deep processing, the most noteworthy is the incremental demand brought by PDH. PDH is currently in a period of significant capacity expansion. In the first half of 2021, Fuji Petrochemical and Midea Petrochemical have been put into production one after another. Recently, Jinneng Technology has successfully solved the terminal problem and the refrigerated ship has successfully docked, marking that Jinneng Technology's 900,000 tons of PDH device has entered the stage of full production. The capacity of the PDH plant that was put into production during the year was 2.22 million tons, which brought a large incremental demand for LPG. There are still many plans to put into production of PDH devices in the later period, and the medium and long-term support effect on LPG prices is relatively strong. On the whole, with the continuation of the economic recovery and the expansion of downstream capacity, the demand for chemical deep processing of LPG is expected to continue to grow, and the proportion of total LPG demand is expected to exceed the proportion of fuel demand.

Summary and outlook


Recently, LPG is strong. The main transactions on the disk are cost support logic and peak season demand expectations. CP rose to a 6-year high, domestic futures spot prices rose sharply, and futures prices hit a new high since listing. Looking ahead, we are more optimistic, and there is still greater upside potential for the current price of the LPG period in the later period. In the later period, we need to focus on the improvement of demand during the peak season. If demand performs better or even exceeds expectations, LPG prices are expected to rise to a new level. On the premise that crude oil prices do not fall sharply and demand increases, Saudi CP is expected to rise above the US$750 mark during the year, the average spot price is expected to exceed 5,500 yuan/ton, and the futures price is expected to hit a record high. In the later stage, investors can rely on the support level of 5000-5200 to gradually build positions for 2111, 2112 contracts and set stop losses strictly. However, we still need to be alert to the risks caused by the sharp drop in crude oil prices and the delayed commissioning of the PDH unit. (Author's unit: China Securities Construction Investment Futures)

(Source: Futures Daily)
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