LPG shipping rates to weaken in 2H24 due to reduced Middle Eastern supply, increasing vessel availability, and concerns over the sustainability of the Asian petchem sector’s recovery, reports Drewry.
Easing transit issues
Asian LPG imports increased 14% YoY for 1H24, buoyed by the pre-election stockpiling in India and the recovery in China’s petchem sector after the government’s initiatives to support the country’s real estate sector. The measures boosted petchem demand, but concerns remain over its sustainability as petchem margins are still negative. Although PDH operating rates improved to 73%, maintenance outages and the start of new plants are expected to bring the rate down. The crash in China’s ethylene prices due to reports of a new PDH plant starting highlights that the market is still oversupplied. The recovery in Asian demand resulted in increased LPG prices, which will again weigh on petchem margins.
The US cargo flows to Asia will remain robust in 2H24, aided by favorable margins, which could be volatile relative to Asian LPG prices and the transit route taken as VLGCs could end up paying a high special auction fee for a passage. The probability of an active hurricane season in the US Gulf can also impact vessel loadings, especially the Houston Ship Channel, impacting roughly 20% of the global LPG supply. Loadings were affected due to Hurricane Beryl, which led to a long backlog and suspension of spot cargo offers.
Middle Eastern supply is expected to contract under 1% in 2024 due to oil production cuts and geopolitical tensions.
Despite the supply concerns, the LPG market has ample stocks to cater to the recovering demand. While we expect recovery in August-September, the mounting vessel availability will likely suppress any substantial growth in shipping rates during the winter season.
The 12% growth in the LPG fleet in 2023 was absorbed by the trade expansion and supply inefficiencies created by the draught restrictions at the Panama Canal and tensions in the Red Sea region. Although the increase in Panama water levels has eased the restrictions, the prolonged tensions in the Red Sea have kept the Suez route shut for vessel transits. Even though the fleet will expand just 4% in full-year 2024, the build-up in capacity will start to weigh on the market and vessel earnings.
LPG shipping in the long run
Drewry expects the growth in LPG fleet to outpace trade until 2029, as several Very Large Ammonia Carriers (VLACs), scheduled to be delivered 2026 onwards, will be forced to operate in the LPG market due to the insufficient availability of low-carbon ammonia. Meanwhile, demand is expected to saturate in the long run (especially in Japan, South Korea and China) with increasing regional capacity, expanding short-haul trade, and reducing vessel absorption and voyage duration.
Did you subscribe to our daily Newsletter?
It’s Free! Click here to Subscribe
Source: Drewry
