Report Industry Investment Rating No relevant content provided. Core Viewpoints - The LPG substitution limit for naphtha in Asia is approximately 70 - 80 tons per month. If the LPG substitution volume continues to increase, the supply - demand gap for Asian naphtha in November may be temporarily filled, and attention should be paid to the probability of marginal weakening of naphtha under large - scale LPG substitution [1][33][40] - The escalation of the Sino - US trade conflict will affect the substitution volume of Chinese cracking units through increased costs, and the specific impact needs to be considered based on the direction of tariff policies [40] Summary by Directory 1. LPG Asian Price Rapidly Weakens - On September 30, Saudi Aramco announced the October CP price. Propane dropped by $25/ton to $495/ton, and butane dropped by $15 to $475/ton. The landed cost was about 4,259 yuan/ton for propane and 4,196 yuan/ton for butane, significantly lower than the previous market expectation of $520 - 530/ton. The CP decline led to a sharp drop in the overall Asian propane market [1][5] - During the National Day holiday, the FEI paper cargo dropped by about $30/ton, and the CP paper cargo dropped by nearly $50/ton. The significant weakening of C3 raw materials led to the weak performance of the post - holiday C3 industrial chain prices [5] 2. Propane Market Share Changes after Sino - US Tariff Game 2.1 China's Import Logistics Changes - After April this year, due to the mutual imposition of punitive tariffs between China and the US, China's LPG import logistics changed significantly. Before April 2025, US sources accounted for over 50% of China's LPG imports. After the tariffs, the volume of LPG imported from the US decreased sharply, and most of the supply gap shifted to the Middle East [6][9] 2.2 US Propane Flow Changes - As the US LPG gradually lost its market share in China, its flow became more diversified, directly impacting the North Asian and South Asian markets. The proportion of US exports to China decreased rapidly, while exports to Japan, South Korea, India, and South America increased significantly, showing a more decentralized logistics characteristic [10][12] 2.3 Indian Market Game - The significant drop in Saudi Aramco's CP official price is reported to be for competing for the South Asian market share. India's LPG import pattern has changed from almost solely relying on the Middle East to mainly sourcing from the Middle East with a gradually increasing US share. In 2025, the US - India energy cooperation framework was reached, and in August, due to the US threatening India over its purchase of Russian crude oil, India increased its purchase of other US energy forms as a compromise [13][16][17] - The Middle East is expected to increase LPG production in the future. With the need to digest the incremental supply and considering the future large - scale launch of US export terminal facilities, a price war seems inevitable [17] 3. Impact of "Low - price" LPG on the Energy - Chemical Industry Chain - The significant drop in LPG prices led to a rapid decline in the prices of the entire C3 industrial chain (on the futures market). The previous large - scale losses of PDH plants have been effectively improved, and the expected operating rate of PDH is likely to increase, which in turn caused the prices of downstream polypropylene products (including propylene oxide, acrylonitrile, etc.) to drop rapidly [19] - The decline in LPG prices also affects the price of naphtha, the central pricing factor for this year's chemical products. After the price drop, Asian petrochemical plants' willingness to purchase LPG has rapidly increased [19] 4. Essence of Ethylene Cracking Raw Material Substitution 4.1 Process Basis for Raw Material Substitution - Ethylene cracking furnaces can be divided into gas cracking furnaces, liquid cracking furnaces, and gas - liquid homogeneous cracking furnaces. When discussing propane substitution in ethylene cracking, it involves two issues: increasing the load of existing cracking furnaces and directly switching raw materials in gas - liquid homogeneous cracking furnaces. The latter has more options for raw material substitution, but the downstream processing capacity limits the degree of raw material substitution [25] 4.2 Ethylene Raw Material Structure and Substitution in Asian Regions - Japan and South Korea are the main Northeast Asian countries that purchase ethylene cracking raw materials externally, and their external naphtha purchases account for nearly 40% of the total in Asia. They are often the vanguards for raw material switching in the Asian market. Currently, LPG accounts for about 20% of the ethylene cracking raw materials in Japan and South Korea, equivalent to an LPG usage of 835 tons per year. With a 20% overload, it is about 170 tons more per year, equivalent to an economic substitution of about 10 - 20 tons per month [26][28] - China and Southeast Asia have a larger proportion of ethylene production capacity. China's ethylene cracking raw material structure mainly includes traditional naphtha/LPG cracking, light hydrocarbon cracking, and MTO. In traditional cracking processes, the ratio of naphtha to LPG is generally 8:2. The maximum LPG usage through overload substitution in China's traditional ethylene cracking capacity is about 30 tons per month, and in Southeast Asia, it is about 20 - 25 tons per month [31] 5. Historical Back - testing and Impact on Naphtha 5.1 Historical Back - testing - The LPG substitution limit for naphtha in Asia is approximately 70 - 80 tons per month. With the recent significant drop in LPG prices, the profit gap between the two has widened, and the economic viability of using LPG in cracking units has increased significantly [33] - Historically, in some extreme situations (such as October 2021, March - April 2022), the monthly LPG substitution volume could reach about 80 tons. Whether this substitution volume will change the fundamentals of naphtha this year remains to be seen [37] 5.2 Impact on Asian Naphtha Supply and Demand - The recent drop in LPG prices will lead to significant substitution of cracking raw materials in Asia. Previously, the high E/W price spread of Asian naphtha has led to a historical high in East - West arbitrage logistics. Meanwhile, the overall demand of downstream ethylene cracking has been weaker than expected due to deep losses and seasonal maintenance. If the LPG substitution volume continues to increase, the supply - demand gap for Asian naphtha in November may be temporarily filled, and attention should be paid to the probability of marginal weakening of naphtha [37] 6. Escalation of Sino - US Trade War and Ship Control - According to the latest US port - calling fee policy for Chinese - related ships, ethane and propane ships need to pay a $50/ton berthing fee at US ports. This will directly increase the cost of importing ethane and propane. For ethane, the impact on domestic raw material selection is not significant for now, but for US - imported propane, it may significantly affect the substitution volume between propane and naphtha in China. However, since China's proportion of purchasing US propane has decreased, the specific impact needs further consideration [39] 7. Summary - From the perspective of the raw material structure in Asia, the LPG substitution limit is about 80 tons per month. If this substitution volume acts on the currently weakening Asian naphtha supply - demand situation, it may fill the supply - demand gap in November and lead to a short - term supply - demand inflection point [40] - In addition to the economic factors of LPG substitution, the recent escalation of the Sino - US trade conflict will also affect the substitution volume of Chinese cracking units through increased costs, and the specific impact depends on the direction of tariff policies [40]