Drewry: LPG ship rates to soften in 2016

LPG shipping rates, strong now in a period of high demand, will begin declining in the second half of 2016 because of fleet growth, predicts Drewry Maritime Research.

Earnings of very large gas carriers (VLGC) are high thanks to rising US exports, increasing long-haul trades, and slow vessel deliveries, the London consultancy notes.

US LPG exports have spurted with increased production of gas liquids and expanding export capacity.

The supply has met much of the growth in Chinese demand, which has been stimulated by start-up of propane dehydrogenation capacity.

Drewry says China imported 8.4 million tonnes of LPG in the first 9 months of 2015, compared with 6.9 million tonnes in all of 2014.

Japan and South Korea also are diversifying from Middle East supplies to US LPG “in order to strengthen their bargaining power,” the consultancy says.

Capacity hasn’t kept up with trade. Eight VLGCs were delivered last year, and 20 joined the fleet in the first 3 quarters of 2015.

While US LPG exports and Asian demand for US supply will remain high, Drewry says, fleet growth will accelerate next year. Meanwhile, expansion of the Panama Canal will cut the voyage distance between the US and Far East by more than one-third.

“Although we do not anticipate a sudden fall in freight rates, we do expect rates to start decreasing from the second half of 2016 as the fleet expansion accelerates,” Drewry says.

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