Report Industry Investment Rating - Unilateral: Oscillating with an upward bias; the tariff policy is bullish, but there are suppressions from the macro and demand sides. It is recommended to wait and see for now. Cross-variety: None. Cross-period: None. Spot-futures: None. Options: None [4] Core Viewpoints - In response to the US tariff increase, China has implemented countermeasures, imposing an additional 34% tariff on all imported goods from the US. As one of the major commodities in Sino-US trade, the LPG market will be significantly affected [3]. - China will significantly reduce its procurement of LPG from the US and turn to sources in the Middle East for substitutes. This change in the trade pattern will lead to extremely unbalanced supply and demand between US and non-US sources (tight supply of non-US sources such as those in the Middle East and loose supply of US sources) [3]. - As raw material costs increase, the losses of PDH plants will further expand. It is expected that some enterprises will choose to carry out maintenance and halt production, and the PDH operating rate may face a certain downward pressure [3]. - With the increase in tariff costs, the price of imported propane in China will be boosted, and the bullish effect will be transmitted to the domestic LPG spot market and the futures market. However, due to the recent sharp decline in international oil prices, it has dragged down the domestic refined oil and post-ether C4 markets. Different from the overseas swaps, the underlying asset of the domestic PG futures is not pure propane. Therefore, the relative weakness of the C4 end will also have a certain restraining effect on the futures market, and it is not advisable to be overly bullish [3] Summary According to Relevant Catalogs China's Countermeasures and the Increase in LPG Import Tariff Rates - On April 4, 2025, China announced that starting from 12:01 on April 10, 2025, an additional 34% tariff would be imposed on all imported goods from the US. The current bonded and tax exemption policies remain unchanged, and the newly imposed tariffs will not be exempted [9]. - China's tentative tariff rate for liquefied propane and butane is 1%. After the additional 34% tariff, the new tariff rate for importing LPG from the US will rise to 35%, meaning a significant increase in tariff costs. Based on the FEI propane swap price on April 4 (USD 500/ton), the landed cost of importing US propane under the new tariff rate will exceed RMB 5,500/ton, a rise of more than RMB 600/ton compared to the previous day [10] Impact Analysis of Tariff Countermeasures on the LPG Market - The trade volume of LPG between China and the US accounts for a relatively large proportion. In 2024, China's total LPG imports were 35.75 million tons, and imports from the US were 17.98 million tons, accounting for about 50.3% of the total. Among them, China's total imports of liquefied propane were 29.24 million tons, and imports from the US reached 17.32 million tons, accounting for about 59.2% of the total [11]. - After the implementation of the new tariff policy, the import volume of LPG from the US is expected to decline rapidly and may even drop to zero. Traders will turn to the Middle East and other regions to seek alternative sources. China may also conduct swap operations with existing US LPG buyers such as Japan and South Korea to fill the gap of US goods to a certain extent [12]. - China's import demand may decline temporarily, and the non-US source market (especially the Middle East) is expected to tighten significantly. In the US, after losing its largest buyer, it may increase its supply to other countries such as Japan and South Korea, but the consumption volume of these countries is also difficult to cover China's gap, making the US LPG supply more excessive, and the FEI and MB prices face downward pressure [13] Impact of Increased Propane Import Costs on PDH Plant Profits - After the tariff increase, China's propane import costs will rise, and the profits of domestic PDH plants will be further pressured [26]. - Due to the overcapacity in the domestic PDH industry and the weak prices of downstream products, the profits of PDH plants are currently relatively low, with a profit of about -RMB 400/ton for propylene production, and the plant operating rate is around 65%. As raw material costs increase, the losses of plants will further expand, and the PDH operating rate may face a certain downward pressure [27]. - This year is still in the commissioning cycle of China's PDH plants, and the planned production capacity to be put into operation may reach 5 million tons/year. After the increase in raw material costs, it is expected that the commissioning progress may be postponed, which will also ease the supply pressure of downstream products such as propylene in China [27] Impact of Tariff Support on Propane Prices and Constraints from Crude Oil and C4 - With the increase in tariff costs, the price of imported propane in China will be boosted, and the bullish effect will be transmitted to the domestic LPG spot market and the futures market. However, due to the recent sharp decline in international oil prices, it has dragged down the domestic refined oil and post-ether C4 markets. The underlying asset of the domestic PG futures is a civil mixed gas, not pure propane. Therefore, the relative weakness of the C4 end will also have a certain restraining effect on the futures market, and it is not advisable to be overly bullish [31]