LPG Market Surge & U.S.-Asia Arbitrage: Feb

Geopolitical shock has driven a strong rally in global LPG

U.S.-Iran conflict and Strait of Hormuz transit risks triggered a broad LPG surge. FEI 23kt propane index spiked to $915.50/mt on 9 March before settling at $866.25 by 12 March - a gain of $241.75 (+38.7%) from the $624.50 starting point on 27 February. FEI 23kt butane index tracked closely at $862.25 on 12 March, up 39.2% from $619.50.
NWE butane was the standout performer, surging 54% from $513.25 to $790/mt on strong gasoline blending demand, compressing the NWE propane-butane spread from $75 to just $24/mt. NWE propane rose 38% to $814/mt. MB non-TET propane gained a more moderate 19% to $0.73/gal, buffered by US domestic supply self-sufficiency.
Extreme intra-period volatility persisted throughout, with the 9 March spike followed by a sharp single-day pullback at FEI on 10 March (propane fell $123.75 to $791.75), reflecting thin physical liquidity and outsized geopolitical risk premiums. The FEI propane-butane spread fluctuated between parity and $14/mt, widest on 3 March and flat on 6 and 10 March.

Naphtha rallied harder than propane, reshaping cracker feedstock economics:

Japan CFR naphtha surged 53% to $977/mt, far outpacing FEI propane's 39%. The Far East propane-naphtha swap spread collapsed from -$4/mt to -$108/mt, making propane dramatically cheaper as a cracker feedstock.
In NWE, the propane-naphtha spread flipped from near-parity (+$0.50) to a $12.50/mt propane discount. Flexible crackers in both regions now have a clear incentive to maximise propane intake.
Despite propane's relative cheapness, absolute costs at $866/mt remain prohibitive for many Asian PDH operators, who had already cut run rates to ~60%.

The U.S.-Asia propane arbitrage blew wide open:

The gross FEI-MB front-month swaps spread surged from $307/mt on 27 February to $460/mt by 12 March (+50%), peaking at ~$496/mt on 9 March. The asymmetry reflects Asia's direct Hormuz exposure versus the US's deep domestic supply buffers.
Net arbitrage margins (after estimated $100–150/mt VLGC freight) rose from ~$157–207/mt to an estimated $310–360/mt - exceptionally wide by historical standards and deeply in the money throughout the period.
The wide arb incentivises maximum US Gulf Coast export loadings, supporting VLGC tonne-mile demand and feeding back into US domestic prices. USTR port fees on Chinese-operated vessels ($26–37/mt uplift) remain a structural headwind if implemented.

Prices and spreads hinge on Strait of Hormuz normalisation - a resolution would compress the FEI-MB arb and propane-naphtha spread sharply. Seasonal heating demand fade should ease propane into spring, while the deep propane-naphtha discount and wide U.S.-Asia arb support continued strong propane demand from crackers and US export flows respectively, providing a floor.