Norwegian shipping investor Joakim Hannisdahl believes tanking VLGC spot rates may not have much further to fall.
The Baltic Exchange assessed Middle East to Asia runs at $19,200 per day on Thursday after plunging from record peaks of more than $170,000 in September on weak freight demand.
The principal of Gersemi Asset Management believes Middle East Gulf to Japan trips are now paying just $15,000 per day, below breakeven and the lowest for 21 months.
US to Japan voyages are assessed at $35,000 per day.
Hannisdahl said he believes VLGC spot rates could soon bottom out, however.
“We see support from the regional propane price differential between the US and the Far East,” he told TradeWinds.
These are currently supportive of theoretical VLGC earnings of about $47,000 per day via the Cape of Good Hope and $67,000 through the Panama Canal, far above the latest spot levels.
“The freight paper curves are in steep contango, while propane futures in the US and Far East imply an increasing arbitrage and implicitly higher VLGC earnings,” Hannisdahl added.
He said the main concern is the ongoing elevated level of newbuilding deliveries, with 3.5% fleet growth expected in the first quarter of this year.
“One key question is whether owners will be able to capture the regional propane price differential between the US and the Far East, or if shipping becomes ample enough for others in the supply chain to carve out more of the profits,” the investor explained.
Fourth-quarter earnings forecasts increase
US-listed VLGC owner Dorian LPG said on Thursday that its time charter earnings were likely to have averaged $71,000 per day in the fourth quarter.
Based on this, Fearnley Securities calculated likely Ebitda at $128m.
Analysts Oystein Vaagen and Fredrik Dybwad said that adjusting for the time-chartered ships, spot rates should come in at about $91,000 per day.
They added this bodes well for BW LPG and Avance Gas results.
These rate levels could see BW LPG realise earnings per share of $1.23, against consensus of $1.20, the analysts said.
For Avance Gas, the investment bank is predicting earnings of $0.85 per share, up from its previous estimate of $0.80.
