Large LPG carriers will outperform smaller vessels in freight markets for the coming quarters, a senior analyst has forecast.
Spot VLGC earnings have recently risen to multi-year highs and hovered above $100,000 per day, but that strength has failed to spill over to the midsize, handy and small segments.
The larger ships will continue to be supported by long-haul shipments from the US to China and other Asian countries, Drewry’s lead gas shipping analyst Aman Sud said.
“The major demand drivers till 2023 will be the rise in LPG consumption in the Chinese petrochemical sector, with a number of petrochemical facilities scheduled to start,” Sud told TradeWinds.
Poten & Partners estimates 13 propane dehydrogenation plants that can consume 10.7m tonnes of LPG per annum in total will come onstream in China between 2020 and 2022.
Sud suggests that India and other Asian countries are also poised to lift LPG imports.
“Residential demand will increase further in India with the government push to increase LPG use as a cooking fuel,” he said. “Meanwhile, smaller Asian countries are also showing a rise in LPG demand.”
Drewry’s orderbook data shows 35 VLGCs are under construction, of which 21 are scheduled for delivery this year.
“The higher deliveries are expected to put downward pressure on the earnings but will be balanced to a limit by the dry-docking and retrofitting schedule in 2021,” Sud said.
But small is ugly
Smaller LPG carriers will fare worse due to lacklustre regional shipping demand during the pandemic, according to the analyst.
“Due to Covid, intra-regional trade had collapsed and is yet to recover fully,” Sud said. “We estimate that it will take a couple of years for the intra-regional trade to recover to 2019 levels.”
Shipowners will scrap more aged vessels due to tonnage oversupply, especially in the pressurised segment, Sud said.
“There are many aged vessels in the small coaster fleet which will keep the time-charter rates under check,” he said, adding that about 25% of the pressurised fleet is over 25 years old.
“With the sub-par intra-regional trade outlook, new orders will be limited although demolitions will rise,” Sud said.
