In-depth Analysis of China’s Domestic LNG Market This Week: Cost Underpinning vs. Off-Season Demand Pressure – Weak Domestic Output vs. Resilient Imported Cargoes with Divergent Volatility
Core Logic
Feedgas auctions lock in elevated input costs to form a solid price floor, driving liquefaction plants to defend quotations via cautious sales. Nevertheless, persistently sluggish off-season end-user demand caps upward pricing potential. Burdened by mounting inventory, domestic liquefiers are forced to cut spot prices, whereas imported seaborne LNG holds firm backed by high international spot prices and supply rationing, leaving the overall market in weak consolidation with stark divergence between domestic and imported supply prices.
I. Market Support: Finalized Late-May Feedgas Auction Consolidates Cost Base and Boosts Price-Defending Sentiment Among Liquefaction Plants
1. Fixed rigid feedgas procurement cost
Closing auction prices for late-May feedgas settled at RMB 3.65–3.95 per cubic meter: lower-end bids edged up while high-end offers retreated, leading to a stable average benchmark. Converted LNG production costs hover around RMB 6,100 per metric ton, with most Northwest and North China liquefaction plants operating near or slightly below cost lines. With little room for feedgas cost declines, producers across the sector intend to stabilize prices and curtail output instead of granting steep discounts, effectively preventing sharp market slumps.
2. Reduced domestic supply from annual maintenance adds further support
The May–July period marks the annual overhaul season for domestic liquefaction facilities nationwide. Multiple production units suspend or cut operating rates to trim domestic LNG supply, reinforcing manufacturers’ pricing leverage and ruling out drastic price plunges.
II. Downside Pressure: Protracted Off-Season Demand Slump Compels Domestic Plants to Cut Prices for Inventory Clearance
1. Broad-based contraction across all downstream consumption segments
Industrial gas demand: Ceramics, glass, chemical and metallurgical industries enter seasonal low operating cycles. Pricier LNG loses cost competitiveness against pipeline natural gas, prompting most industrial consumers to shift permanently to piped supplies. LNG purchases are limited to sporadic emergency replenishment, and bulk procurement nearly dries up.
Vehicle LNG demand: Sluggish long-distance freight activity, continuous substitution by new-energy heavy-duty trucks, and shrinking price gaps between LNG and diesel drag down retail volumes at refueling stations. Traders and filling stations only place small spot orders for immediate use with no inventory buildup, eliminating large-volume market transactions.
2. Bearish waiting sentiment → inventory accumulation → forced price markdowns
Downstream buyers stay on the sidelines amid falling prices and prioritize cheap cargoes, leaving high-priced domestic LNG unsold. Mounting inventory and tight cash flow squeeze small-to-medium liquefiers, which reluctantly slash ex-factory prices to accelerate capital recovery, pulling down regional domestic LNG quotations and weighing on overall market sentiment.
III. Resilient Imported Seaborne LNG: Elevated Global Spot Prices + Supply Rationing at South China Terminals Create Price Divergence
1. Persistently high landed import costs
Geopolitical tensions, disrupted LNG shipping in the Middle East and scheduled overhauls at overseas liquefaction plants keep Northeast Asia spot LNG prices elevated. Arrival costs for domestic receiving terminals remain steep, with combined costs of long-term contracts plus spot cargoes far exceeding domestic production expenses and underpinning the bottom of imported LNG prices.
2. Price-defending via volume control adopted by South China import terminals
South China serves as China’s core distribution hub for seaborne LNG. Terminals struggle with low tank inventories, occasional vessel schedule delays and limited new inbound cargoes. To avoid losses from cost inversion, most terminals enforce restricted truck loading and controlled outbound sales to tighten spot supply and prop up quotations. Most terminal prices hold steady, with partial cargo quotes edging higher amid tight availability, forming a fragmented market where domestic prices slip while imported LNG stays flat or inches up.
IV. Market Wrap-up: Weak Range-bound Volatility with Polarized Price Performance
Domestic LNG (predominantly Northwest & North China): Sustained high costs paired with poor demand underpin strong price-defending willingness, yet unavoidable inventory pressure triggers gradual price declines across select regions.
Coastal imported LNG (led by South China): Backed by high import costs and artificial supply curbs, tight local fundamentals support resilient quotations with mild upticks in certain areas.
Sector-wide consensus: Input costs block sharp downside corrections while weak demand eliminates upside momentum; the entire market maintains weak sideways consolidation.
V. Short-term Market Outlook
Downside limit: Projected higher feedgas auction costs in early June plus ongoing liquefaction plant maintenance will cap sharp drops for domestic LNG, precluding dramatic price collapses.
Upside limit: The traditional off-season will persist through mid-to-late June; industrial and vehicle gas demand lacks fundamental recovery drivers, and end-users resist expensive offers, leaving no basis for a sustained bull run.
Persistent pricing divergence: Imported LNG will continue outperforming domestic supply. South China terminals are likely to retain supply rationing and firm offers unless international spot prices fall markedly. Domestic liquefiers remain exposed to mild downside risks until existing inventories are fully cleared.