New York-listed Dorian LPG has booked more than 60% of days in the current quarter at solid rates exceeding $100,000 per day, but the numbers do not reflect the worst of the current market weakness.
Dorian’s disclosure during its quarterly earnings call proved encouraging yet also raised questions about how much those figures may weaken if the prevailing market malaise takes some time to lift.
“We had fixed pretty far forward. We didn’t have much to fix when the market dropped,” Dorian chief commercial officer Tim Hansen told Fearnley Securities analyst Oystein Vaagen.
“As the market drops, people don’t fix that far ahead. We’ll see if it turns around before we get to that fixing window.”
Dorian LPG posted net earnings of $100m in its third quarter ended 31 December, up from $51.3m a year earlier.
But given that the once-rampaging LPG market has taken an abrupt downturn starting in January, analysts were less interested in the record quarter past than the more challenging start to 2024.
The Baltic Exchange recently assessed Middle East-to-Asia runs at $19,200 per day after plunging from record peaks of more than $170,000 in September on weak freight demand. VLGC rates are viewed as below financial breakeven and the lowest for 21 months.
Jefferies lead shipping analyst Omar Nokta pressed on the factors behind the sharp slump, and when management sees the trend turning again.
Hansen pointed out that the market typically drops at this time of year.
“But it’s at a lower point now than at the trough of last year,” he said. “This year it was very quick and dramatic, but from a very high price.”
Hansen called the move “an overreaction” driven by the onset of cold winter weather in the US driving up domestic LPG prices and snarling the arbitrage for Asian exports, plus the temporary unwinding of congestion in the Panama Canal that had been a major driver of record spot rates.
The end of the coldest winter weather in the US will help the former, while “we think there will be a return to congestion being the norm rather than the exception” in the canal, particularly given a high orderbook delivery for container ship newbuildings this year, Hansen said.
Fundamentals also should improve moving past the Chinese New Year, when the market typically slows, he said.
“So when will it improve? We think pretty soon. Within this quarter we will see this alignment,” Hansen said. “It’s been overshot on the downward side. It could take a little while, but I’d say within this quarter we expect it to correct.”
Dorian chief executive John Hadjipateras said working out the exact timing is tough, but the recovery will be worth the wait.
“The question is when it bounces how well it bounces. When the market starts flowing it kind of forgets where to stop. I think we’ll hit the bottom quickly and bounce back,” he said.
