China’s LPG market has been on a rollercoaster ride this year, caught between tariff wars, volatile petchem margins and shifting supply patterns. Following the lows in June, the country’s LPG imports began to recover in July owing to robust feedstock demand from PDH plants and temporarily eased geopolitical headwinds, after the second 90-day pause of US–China tariffs in August.

LPG shipping rates reflected the shift, with vessel availability tightening and freight rates rising on US–Japan and AG–Japan routes. However, even with the upsides, concerns remain over the sustainability of the rebound, with petchem margins still under pressure and tariff uncertainty still continuing.

From collapse to recovery

The US–China tit-for-tat tariffs in April created tensions in China’s petchem sector, as more than half the country’s LPG imports come from the US. The announcement triggered a reduction in petchem operating rates and shutdowns at North China crackers reliant on US-origin cargoes, while steam crackers shifted to naphtha.

Chinese buyers moved to secure alternative supplies from the Middle East and Canada but the associated premiums exacerbated negative margins, especially for smaller and less-efficient crackers. Consequently, China’s imports from the US dropped, while the premiums hampered demand from the petchem sector. Additionally, Middle Eastern cargoes with even propane-butane splits are misaligned with China’s propane-heavy demand.

As a result, China’s overall imports plunged in June, with US LPG’s share of China’s imports crashing to 12% (from 59% in February 2025), reflecting reduced fixtures post-April. However, a 90-day tariff pause (with China’s retaliatory tariff on US LPG falling from 125% to 10%) prompted a cautious recovery in China’s LPG imports, with the US share rising to 17% in July. The tariff pause failed to alleviate fears among the buyers, but the second 90-day extension is expected to incentivise Chinese buyers to move towards US LPG again.

China’s import recovery will be supported by robust US exports and the rise in Middle East output, following OPEC+ production cut reversals. The start of new terminal capacities in the US can further raise global LPG supply, ease prices and thereby generate demand.

The robust LPG supply and competition for market share among suppliers slashed LPG prices, and despite elevated spot freight rates on AG–Japan and US–Japan routes, China’s landed price remained low. This bolstered buyer sentiment and drove robust fixing activity, reinforcing the recovery in seaborne LPG trade.

However, recovery faces structural and seasonal headwinds

Robust LPG supply eased LPG prices, while strengthening shipping rates further pressured the arbitrage as Asian delivered prices plunged further. The narrowing US–Asia arbitrage can affect LPG trade while increasing Panama Canal congestion and more vessels taking the COGH route can further reduce trade on the US–Asia route.

Secondly, China’s LPG demand growth remained subdued in January–July 2025 at just 1% YoY (the slowest since the 2019 trade war), despite the commissioning of three new PDH units—Guoheng Chemical’s 0.6 mtpa plant in Fujian, Wanhua’s 0.9 mtpa facility in Shandong and Zhongjing Petrochemical Phase 3’s 1 mtpa facility in Fujian—bringing China’s total PDH capacity to 24 mtpa.

This stagnation stems from a confluence of factors, including—shutdowns across small-scale PDH units, particularly those reliant on trucked propane from coastal terminals, as these terminals prioritised feedstock security for integrated PDH complexes and curtailed third-party propane sales. Moreover, several LPG-fed steam crackers have shifted to naphtha due to improved economics.

While July and August showed signs of a rebound, the sustainability of China’s LPG recovery remains uncertain. Key downside risks include:

• Weakened PDH margins: Rising propane prices ahead of winter and weaker propylene futures with the ramp-up of new propylene capacity could further erode margins, threatening operating rates.
• Structural demand shift: PDH now accounts for more than half of China’s LPG demand, indicating a narrowing base of demand drivers, increasingly concentrated in PDH and MTBE sectors.
• Seasonal MTBE demand declines: Butane consumption is expected to taper off with the end of the gasoline blending season, reducing MTBE production and impacting butane imports.
• Feedstock competition in steam crackers: Improved domestic naphtha production, tariffs on US LPG and premiums over Middle Eastern supply are promoting naphtha consumption in the steam crackers, limiting LPG demand.
• Geopolitical volatility: Uncertainty around tariffs and regional tensions—such as the Iran–Israel conflict in June—pose supply risks. Further, China’s growing reliance on Iranian LPG (15% of 2024 imports) exposes the sector to potential sanction disruptions.

The rebound in July highlights the responsiveness of Chinese buyers to favourable market conditions—particularly when PDH margins turn positive. However, the recovery remains fragile. Petchem margins remain compressed, geopolitical tensions are intensifying and winter heating demand is poised to drive propane prices higher. As a result, China’s LPG import growth is expected to stagnate at just 2% in 2025.

What does this mean for LPG shipping?

Trade route realignments following the US–China tariff truce turned out to be a key swing factor impacting VLGC earnings in April. Anticipating tariff enforcement, Chinese importers accelerated US LPG liftings, triggering a surge in spot rates. Concurrently, vessel repositioning from the Middle East to the USG tightened tonnage availability and amplified the surge momentum.

As the loading window closed on 9 April, trade flows pivoted. Chinese buyers shifted focus to Middle Eastern liftings, while US cargoes found alternative Asian destinations. This realignment extended tonne-mile demand, offering additional support to freight rates. As tensions eased, China’s renewed appetite for US LPG supported robust USG loadings, sustaining high VLGC rates in June–July.

In the remaining months of 2025, we expect a gradual recovery in US–China LPG trade—should it persist—to likely support spot earnings as the long-haul trade engages more vessels. Meanwhile, any resurgence in tariff tensions could once again catalyse cargo reselling and vessel repositioning, offering short-term rate upside.

While these developments may offer intermittent upside for VLGC spot rates, they do not resolve the underlying structural imbalances. Fleet oversupply and a deceleration in global LPG demand growth continue to exert downward pressure on long-term earnings potential.

Conclusion

Volatility will remain the defining feature of the VLGC market through the remainder of 2025. China’s LPG demand may show pockets of resilience, but sustained growth will depend on a delicate interplay of trade policy, feedstock economics and global supply dynamics. For shipping, the outlook remains cautiously optimistic, but longer-term fundamentals suggest sustained weakening in VLGC earnings.
Source: Drewry