A need for Western countries to diversify energy supplies is good news for VLGC owners, analysts say.
Norwegian investment bank Fearnley Securities is reiterating its “buy” rating on LPG carrier owners despite rates being forced down from $50,000 per day in January to $15,000 now.
The company said this is due to a “challenging product market”, with tight price differentials leaving little room for freight arbitrage.
But analysts Peder Nicolai Jarlsby, Erik Gabriel Hovi and Ulrik Mannhart said: “Considering the current energy market turmoil, we would expect to see another shift in energy diversification.
“The crisis in Ukraine will lead to increased demand for diversified hydrocarbon sources, particularly natural gas where LPG is a by-product.”
The analysts argue that near-term developments look challenging, with elevated US prices, but the “current commodity backdrop should stimulate LPG production and by extension improve the playing field for LPG shippers”.
Many market participants are drawing parallels between the 2016/2017 VLGC market and the 2023 orderbook.
Fearnleys admits the 2023 delivery schedule is “daunting”, with 47 VLGCs due to be handed over.
“But the major difference is oil/natural gas prices offering a completely different backdrop today than back in 2016,” the analysts said.
US natural gas and oil prices are both double what they were back then.
Second half of 2022 looking positive
“We also believe the arbitrage to a much bigger extent is the key driver of freight returns and we expect a substantially more favourable LPG trading environment come the second half of 2022,” the analysts said.
LPG carrier owner shares remain the most discounted shipping equities, the investment bank argues.
They trade at 60% of net asset value (NAV), despite outperforming tankers and bulkers in terms of earnings over the past decade.
Fearnleys is tipping the big VLGC owners such as BW LPG, Dorian LPG and Avance Gas to keep selling older ships, bridging the NAV gap and allowing higher dividends.
Rates rising again?
Shefali Shokeen, a market analyst at Dubai’s Stradeza Shipping & Trading, told TradeWinds that March VLGC rates are on the up, rising 9% to $48.90 per tonne this week on the back of multiple enquiries by Indian and Chinese charterers.
“The spot rates are further expected to pick up as vessel fixing activity has started for second half of March and April as majority of the cargo volume remains uncovered,” she said.
Shokeen also pointed to an increase in waiting times at the Panama Canal as tailwainds for the sector.
She is forecasting rates to go above $50 per tonne this month.
