Very large gas carriers (VLGC) market circumstances remain outstanding, with spot rates claiming new records on two key trade routes.
Price differences between US propane and its Asian and European counterparts reached a six-month high earlier this month, with Jefferies analysts noting spot rates for VLGCs at levels not seen this year.
The trend continued into this week, with the Baltic Exchange’s assessment of time charter equivalent rates for the Arabian Gulf-Japan route reaching a record $154 per tonne, or $140,600 per day, on September 11, while rates to ship LPG to Japan from the US Gulf landed at $221 per tonne, equivalent to earnings between $127,500 and over $131,300 per day on a round trip.
For comparison, the Baltic Exchange’s Liquified Petroleum Gas Index spot earnings for a VLGC transporting LPG from Ras Tanura, Saudi Arabia, to Chiba, Japan, closed at $151.4 per tonne, with Houston-Chiba closing at $220 last week. The US to Europe on Monday stood at $120 per tonne with spot revenues at some $139,300 per day, which brings the most recent average earnings on these three routes to about $137,000 per day against last month’s estimated average of $84,000.
Gas ship owners such as BW LPG and Avance Gas both saw strong earnings in the second quarter, buoyed by an increase in demand for vessels in both of these main load regions, US-Asia propane arbitrage, and rising delays at the Panama Canal. Pareto Securities recently lifted their estimates on the duo, with Q3 becoming even better and rates now on the rise again into Q4.
“As we head into Q4, US propane inventories remain swollen. Tepid domestic demand and steady production growth remain the story near-term, and we will end the ‘build’ season in October/November at an all-time-high level,” the Norwegian investment bank said, adding that “with Chinese PDH demand growth this year in theory exceeding 8m tonnes, that demand alone could support a 5 – 10% growth in long-haul VLGC trade”.
Clarksons Research said in a recent report that with several cargoes still uncovered for October earnings on the Houston-Chiba route, rates are expected to remain very firm, “though some resistance to rate rises has been seen in recent days as firm rates begin to bring the arbitrage into question”.
“Looking ahead, strength looks set to continue, with ships being fixed a long way out and support from additional cargoes ex-Australia,” Clarksons said in its latest assessment of prospects to ship LPG from the Middle East Gulf to Japan.
A recent report from commodities platform Vortexa shows quarterly VLGC deliveries are expected to increase until the end of 2025. “Unless demand can increase to absorb new tanker supply, downward pressure could increase on LPG freight rates in the next few quarters,” Vortexa noted.
Year-over-year VLGC fleet growth stands at about 11%, with some 40 ships left to deliver, according to Pareto Securities, which however observed that the recent drought in Panama “could easily see 10 – 30x vessel equivalents absorbed there either by a return to 10+ waiting days each way or by forcing vessels to take the long route via Africa or the Suez Canal”.
