Singapore VLGC player BW LPG expects vessel use to come under increased pressure from supply cuts and a big orderbook.
The Oslo-listed spin-off of shipping giant BW Group sounded the warning after posting a net profit of $80.6m in the first quarter, compared to a loss of $23.5m in 2019.
VLGC rates were strong in the period, and were riding high at $60,000 per day last month, but have since crashed back by more than half as supply cuts started to impact the sector, causing a build-up of free tonnage.
The company said LPG imports are being been supported in the short term by the recovering demand in China and increasing retail demand due to Covid-19 lockdown measures.
But over the medium to long term, imports will be hit by lower demand from steam cracking as naphtha becomes relatively cheaper than LPG.
BW LPG said the orderbook of 35 VLGCs to the end of 2022 represents 12% of the global fleet.
"However, 10% of the total fleet will be older than 27 years by the end of 2022 and some of these vessels will likely be recycled," the company added.
Oil price rise could help
"A weaker outlook for LPG supply coupled with a high orderbook is expected to put downward pressure on vessel utilisation. Recovery to a higher oil price environment may affect this outlook positively."
The company will pay a dividend of $0.20 per share for the quarter — a total of $28m.
Ebitda was $126m, but Fearnley Securities had expected $147m. The firm had also forecast earnings per share of 72 cents, against an actual result of 58 cents.
The Baltic VLGC index averaged $54,000 per day in the quarter. Fearnley had an estimate of $45,000 per day for BW, against the final figure of $42,300 per day.
"However, we would highlight the uncertainties on estimates for this quarter due to fixing window and fuel switch, ie HFO vs MGO on longer US-East voyages and early fuel purchasing prior to bunker price decline," Fearnley added.
Revenue grew to $162m from $60.2m in 2019.
The company said it had added $38m to an existing $400m facility, at Libor plus 170 basis points.
This will finance the retrofitting of five dual-fuel LPG engines.
New permanent chief executive Anders Onarheim has been awarded 186,304 share options under its incentive plan.
These are worth NOK 6.2m ($620,000) at the current price of NOK 33.48 each. Onarheim already holds 30,000 shares in the company.
