Delays for Panama Canal transits and fleet dry-docking requirements are likely to support VLGC freight rates in 2021, shipbroker and consultant Poten & Partners said.
In a webinar, Poten’s LPG team outlined how these market inefficiencies would likely outweigh any risks from a fall in US LPG production or the VLGC newbuilding deliveries expected this year.
Poten LPG shipbroker Peter Stebbing said that as a result of the unexpected rule changes for VLGCs announced by the Panama Canal Authority on 31 December, neo-panamax vessels can only apply to pre-book slots 14 days in advance of a requested transit, with panamax vessels being limited to 22 days.
Premium rates
But he said Poten believes the move by the canal authorities will only have a significant effect from 2022 onwards.
Stebbing said 450 northbound slots and 185 southbound slots have already been pre-booked for neo-panamax VLGCs for 2021 prior to the new ruling coming into effect on 5 January.
“We believe charters will view these ships with firmer itineraries as more attractive and we believe owners may be able to command a premium for these ships in the spot market,” he said.
Stebbing sees round-trip canal delays of roughly 10 days becoming the norm for VLGCs.
“One thing is for certain, Panama Canals delays will continue to be both a blessing and a curse for VLGC owners as scheduling issues will cause plenty of headaches for chartering managers but will also remain one of the key factors in supporting freight rates over the next couple of years,” he said.
Production pain
Poten LPG consultant Shantanu Bhushan said if the Covid-19 pandemic is not brought under control, US LPG production could decline by 2% year on year this year, to 77m tonnes, or between 5% and 7%, to 73 mt, at worst.
While he also outlined a more optimistic case, he said similarly US LPG exports would likely fall to 43 mt this year, from slightly over 44 mt in 2020, or hit 41 mt in the more pessimistic scenario.
Stebbing said that based on a Houston to Chiba, Japan, voyage and a 10-day Panama Canal wait time, each 1 mt drop in US LPG production would represent the loss of four VLGCs worth of employment per year.
Disruptive factors
But he said there are other disruptive factors which will continue to influence freight rates this year.
Stebbing said some 70 VLGCs still need to undergo dry-dockings in the next 12 months and said this remains “one of the most supportive factors for freight rates this year".
The broker said this, combined with the Panama inefficiencies, has left Poten optimistic on the VLGC shipping markets, despite the risk to LPG supply.
But Stebbing said the 39 vessel VLGC orderbook remains one of the “most significant risks” to VLGC rates this year.
The VLGC fleet is expected to grow by just under 7% in 2021, the broker said, with one ship delivered and another 19 scheduled for handover this year — the bulk in the second half.
He said it is one of the key reasons why the Baltic freight assessment for the second half of 2021 is trading at a roughly $8.00 discount to the first half of this year.