Charter rates for VLGCs are expected to remain muted for the rest of this year and into the first half of 2022 on the back of lower exports of US LPG, according to shipbroker and consultant Poten & Partners.
Analyst Jon McDonald said in a webinar that while VLGC rates had risen sharply in December 2020 and into January they had then fallen rapidly, bottoming out at about $30 per tonne.
He said they then recovered slightly before flattening out for most of 2021, largely due to VLGC fleet additions throughout the year.
McDonald said charter rates have risen slightly in recent weeks due to an uptick in chartering activity. But he said they are still about $10 per tonne lower than at this point of 2020.
Flat future
He said that on the basis of the Baltic Exchange forward rate assessments, these trends are expected to continue with charter rates likely to remain between $50 and $55 per tonne.
McDonald said this is based on continuing VLGC fleet growth and a relatively small increase in LPG exports from the US and Middle East.
Poten senior LPG analyst Zahid Afzal said high prices and tight arbitrage are expected to keep freight rates under pressure throughout the winter months.
Afzal said LPG prices are up sharply worldwide with the market not seeing these levels since 2014.
He said US prices have increased the most during 2021 mainly due to rising exports which have outpaced the growth in production.
But the analyst added that this is also driving prices higher in the demand regions such as the Far East, North West Europe and the Mediterranean, where levels more than doubled in the month of September compared with the same month of 2020.
Inventory concerns
Afzal said US LPG exports in the months from January to September this year were up about 11% on the same period in 2020 at about 37.8 million tons. But production from gas plants had increased only by about 2% during the same timeframe.
While a cold winter drove exports to Europe and the Far East, bad weather in February also hit US production, he explained.
"Both of those had a deep effect on US inventories which fell quite precipitously earlier this year," he said, adding that there are concerns about the low pace of restocking that could lead to winter shortages and price spikes.
As a result, Poten expects US LPG exports to be fall to about 41 million tons in the period from October through to March 2022, which is slightly lower than the previous six months.
But he said production should start to increase from the second quarter of 2022 with the pace picking up beyond that.
In contrast, McDonald said LPG exports from the Middle East were up marginal by 200,000 tons in 2021 with anticipated oil production increases expected to drive these higher in in 2022 and 2023.
