Clarksons is “cautiously optimistic” about the outlook for the VLGC market on the back of strong LPG volumes coming out of the US.
It said many people had feared that some market pressure would emerge this year following record newbuilding contracting in 2021.
“However, strength in US LPG exports has provided a notable boost to VLGC tonne-mile demand so far this year, supporting vessel charter markets,” it said.
US LPG exports have grown firmly over the past decade on the back of increasing oil and gas production in the wake of the shale revolution.
Clarksons said on an annual basis, 2022 was a record for US seaborne LPG exports at 50.6m tonnes, representing a market share of 42%.
“Since 2012, when US exports totalled 4.2m tonnes, shipments have grown by a compound annual growth rate of 28%, and the US has accounted for 79% of global seaborne LPG trade growth across that period (95% in tonne-miles),” it said.
“Export growth has accelerated into 2023, with a monthly record of 5.5m tonnes reached in March, and exports averaging an estimated 5m tonnes in January to May, 9% above the 2022 average.”
Rising oil and gas production amid supportive prices has again been an underlying export growth driver.
“However, very strong US propane inventory levels have also aided exports by lowering domestic prices and supporting the arbitrage to the East, as well as freeing up more product for export,” it added.
Asia has been the largest destination for US LPG exports this year. Latin America and Europe have also been key importers.
“A healthy arbitrage to Asia has supported US-Asia trade in the year to date, with 54% of exports in January-April heading there, up from 51% across full-year 2022,” Clarksons said.
“Firm Chinese imports, with 11% projected growth this year, amid continued [propane dehydrogenation] capacity expansions and increasing utilisation, have provided impetus, while propane’s discount to naphtha in March and April is likely to have supported imports into other Asian countries.”
With strong US exports supporting tonne-mile demand, VLGC spot rates have performed unseasonably well this year, the shipbroker said.
“Earnings for a VLGC on the Houston-Chiba route have averaged $69,800 per day in the year to date, up from $43,600 per day in the equivalent period of 2022, despite robust VLGC fleet capacity growth of 4.8% in the first five months of 2023,” it added.
Panama Canal delays are also said to be continuing to have an impact. Vessels are reportedly “Cape-routing” to avoid volatile waiting times also beneficial for tonne-mile demand.
Clarksons said a healthy US-Asia propane arbitrage has been another supportive factor, allowing for spot LPG trade to be economical at firm freight levels.
“US LPG exports have exceeded expectations so far this year, reaching record levels, while the outlook for the rest of the year is positive. On the back of this, the VLGC market has surprised to the upside, despite firm fleet growth.”
It warned, however, that expansion on the supply side brings the potential for weaker periods of earnings and volatility.
